Why S&P 500 Bulls Should Have a 'Glass Half Full' Mentality

The S&P 500's rangebound trading matches 11 previous price actions in the last decade

Sentiment is becoming more cautious as the S&P 500 trades in a narrow 3% range “ Amid potentially market-moving headlines that range from a new Fed governor to opportunities and risks related to artificial intelligence, the U.S.-Iran war, and volatile oil prices, the SPX continues to trade in a two-month range….This range began when it approached the 7,530 level in mid-May that coincides with a 10% year-to-date return. On most days, the SPX has traded between 7,300 and 7,530. Indeed, the 7,530 level has been a speed bump, which I anticipated as a possibility two months ago .”

Stocks were lower last week, but nothing has changed when observing the S&P 500 Index’s (SPX--7,411.98) price action since mid-May, when the index first approached the 7,530 level that is 10% above last year’s close. There have been 48 trading days since May 14, and there have been only four trading days in which the SPX’s open, high and low were above 7,530. During the other 44 trading days, there has either been a touch of 7,300 or 7,530 or full candles between these two levels. In other words, it has been a narrow 3% trading range. It is a flashback to December 2025 through February 2026, when the SPX entered a three-calendar month, or 66 trading day range, between 6,800 and 7,000. The jury is out on how long this range will last, but the December 2025 through February 2026 action was also just a 3% range. For what it is worth, after the first full candle below the 6,800-7,000 range on March 6, the SPX dropped nearly 6% in a three-week period. For clues about what may follow a breakout from this range, recent history offers a guide: over the past 10 years, the SPX has shown multiple similar two-month holding patterns. We used our pattern matching capabilities to produce forward returns that are displayed in the table below. If you are a bull, the historical results aren’t that encouraging for the next month. But looking out three months, there is reason for bulls to have a “glass half full” perspective. The highlight in the table below references the December 2025 through February price action that I discussed above, our most recent data piece. In the immediate week ahead, company-specific events will dominate and allow traders and investors to be less preoccupied with what is going on at the broader index level. This week is the heaviest earnings reporting week during the earnings season. On the macro level, it goes without saying that unpredictable headlines relating to U.S.-Iran tensions may cause overnight or even intraday whipsaws at the index level. This week also brings the Federal Open Market Committee (FOMC) meeting. It is a toss-up as to what Fed Funds futures traders are expecting, with the implied odds of a quarter-point rate hike at 38% and the implied odds of no change at 62%. On the sentiment front, retail traders are apparently bracing for a break of this range to the downside, with the American Association of Individual Investors (AAII) weekly survey showing only 29% of those surveyed as bullish, the lowest bullish reading this year. Option buyers on SPX components are becoming apprehensive too, as the 10-day buy (to open) put/call volume ratio is turning higher from a neutral level. A bull would like to see the SPX hold its range as sentiment becomes more and more cautious. The contrarian implication would be a breakout above the range when few expect it. History, however, suggests bu...