The S&P 500 is on the rise, with over 54% of its stocks trading above their 200-day moving average. This is a significant change, as it hasn’t happened in more than 200 trading days. The number of stocks above this average shows that the market is strong overall, rather than depending on a few top performers. The index is moving up within a clear rising channel that started after last year’s correction. The market respects the midline of this channel, indicating that buyers step in during pullbacks. The market is progressing steadily without instability.

Focus on Key Psychological Levels

There is attention on the $7,000 level, a key psychological point. These levels often trigger short-term reactions. If this level is surpassed, the next target would be around $7,100, which aligns with the midline and a Fibonacci extension target. Upcoming economic reports, like the Consumer Price Index (CPI), could create short-term volatility. However, liquidity expectations and systematic positions often affect price changes at all-time highs. Unless there is a major break of the channel or a drop in participation, the trend seems stable, even at high levels. The current upward trend feels similar to before, but the underlying structure shows key differences from the healthy trend of a year ago. The S&P 500 is around $7,450, but there are concerns about participation. It’s a time to be cautious instead of chasing trends. Reflecting on early 2025, we were optimistic when over 54% of stocks were above their 200-day moving average, signaling a strong uptrend. Now, that number has dropped to 48%, suggesting that only a few large companies are driving progress. This narrowing leadership is a classic warning that the rally’s strength is fading.

Changes in Market Dynamics

The price channel that guided us last year has weakened, with prices struggling to stay within the lower bounds of their current range. Unlike last year, pullbacks are no longer consistently bought, indicating that buyer confidence is faltering. Focus has shifted from the cleared $7,000 level to the strong resistance at $7,500. Even though the VIX is low at 15, the recent December 2025 CPI report came in slightly high at 2.8%, which adds to the tension. This macroeconomic pressure makes it less likely to see a clean break above $7,500 soon. For traders, this situation suggests a shift from aggressive bullish strategies to more defensive or income-generating ones. Buying protective puts on the SPX with February expirations can help protect against a possible pullback toward the $7,300 support level. Another strategy could be selling call spreads with a short strike at or above $7,500 to take advantage of strong resistance and expected range-bound trading. Create your live VT Markets account and start trading now.

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