The U.S. financial markets, particularly the S&P 500 index, are experiencing a period of volatility that warns of a correction or possibly the beginning of a bear market, trading today, Friday, near $5817.80. In my view, the consecutive declines of the S&P 500, Dow Jones, and Nasdaq 100 indices at the start of the week suggest that the market may face significant pressures in the coming weeks. On the other hand, the Russell 2000 index, which tracks small-cap companies, has suffered losses for four consecutive sessions, reinforcing the impression of a broader pullback in the U.S. stock market.
In my opinion, this pullback is quite similar to the correction that occurred in August when stocks suffered notable losses. With the current pressure continuing, the question is whether this correction will turn into a bear market or remain merely a temporary adjustment. I believe that political and economic tensions, especially the uncertainty surrounding the upcoming U.S. elections, play a significant role in reinforcing this negative outlook. Electoral tensions, combined with the economic difficulties faced by American companies, could further undermine market confidence.
One important indicator supporting this trend is the “Fear and Greed” index, which has remained in the 70-75 range since late September, reflecting a state of increasing greed. Historically, a market at this level is considered a precursor to an impending correction, as the index tends to revert to a more neutral zone. In my view, this indicator bolsters the expectation that investors may have been overly optimistic, and the current pullback is recalibrating the market after a wave of unsustainable gains.
Additionally, the rise of the Volatility Index (VIX), which surpassed 20 in early October, enhances the sense of tension in the market. A rise in this index is typically associated with increasing fear of a market downturn, especially when coupled with declines in major stock indices. I see this tension as reflecting the uncertainty surrounding the electoral landscape in the U.S., where the race between candidates is fluctuating, increasing the likelihood of market disruptions in the near term.
Considering the analysis of the volatility index movement rather than just the absolute levels, we find ourselves entering a sensitive phase where volatility usually peaks in the week before and the week after elections. This reinforces the likelihood of continued market declines in the short term, especially if political and economic clarity in the U.S. does not emerge following the elections. From this perspective, I believe investors should be cautious during this period, as tensions in the market may escalate if uncertainty persists.
As for the Relative Strength Index (RSI) of the S&P 500, it supports this bearish trend. It peaked at 70 at the beginning of last week and then fell to 59. Meanwhile, prices remain significantly higher than their levels in July, indicating a gap between technical performance and real underlying fundamentals. In my opinion, this divergence reflects a state of excessive optimism in the market, making it vulnerable to a deeper correction if current pressures persist.
Finally, when analyzing potential correction levels using the Fibonacci model, we find that the 5600-5700 zone for the S&P 500 could serve as a potential target if the pullback does not deepen. However, with ongoing political and economic tensions, markets may experience larger-than-expected declines. I believe investors should remain vigilant, especially with elections approaching and the likelihood of increased market volatility.
It seems to me that U.S. markets are in a critical phase, and the overall market trend remains bearish in the short term. However, long-term expectations will largely depend on the political outcomes and economic policies implemented after the elections.
Technical Analysis of (US500 – S&P500) Prices:
On the technical side, the S&P 500 index has been consolidating around its all-time high, as a lack of catalysts and pressure from rising Treasury yields have kept the market under control.
With the U.S. elections approaching, this is expected to be a key event for the market. A Trump victory is likely to provide a boost to the stock market due to better growth expectations, while a Harris victory may be more negative. Treasury yields and the stock market often move in the same direction as long as the movement is driven by growth expectations. Therefore, the data, the election results, and the Federal Reserve’s response will be crucial for the market in the next six months.
US500 – S&P500 – MT4 – Prices Chart -XS.com
On the chart, the S&P 500 index has recently reversed its direction upward from the support zone between the key support level of 5785.00—previously the peak of wave 1 from September—along with the 20-day moving average and the 50% Fibonacci retracement of the upward move since the beginning of October.
This bullish reversal from this support area is likely to form a daily candlestick reversal pattern known as the Morning Star. Given the clear daily upward trend, the S&P 500 index is expected to rise towards the next resistance level at 5900.00, which previously reversed the index earlier this month.
From a risk management perspective, buyers will have a better risk-reward setup around the trendline. On the other hand, sellers will want to see the price break the trendline to start targeting new lower levels.
On the four-hour chart, we can see price movement within a defined range between the resistance level of 5920 and the support level of 5865. Here, buyers will want to see the price rise to extend gains to new levels, while sellers will be looking for a drop to target a deeper retracement below the trendline at 5772.
Support Levels: 5806 – 5793 – 5772
Resistance Levels: 5832 – 5844.3000 – 5867
