S&P 500 Climbs Despite Overbought Signals On Below Average Volume

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Market Summary for Friday, May 16, 2025, and Outlook for Monday, May 19, 2025
Market Performance:
The market continued its upward trend, closing up 0.7% at the intraday high on below-average volume, despite being options expiration day.
Prices opened higher, oscillated around the unchanged level, broke above R1 (5939), hit resistance at 5950, fell back, and rose to close just below R2 (5961).
The S&P 500 is positive relative to its 20, 50, and 200-day moving averages, indicating strength in short, intermediate, and long-term trends.
The Dow turned positive year-to-date, joining the S&P 500.
Key Indicators and Observations:
Positive Momentum: Short-term indicators (e.g., StochRSI, Williams %R, CCI, Stochastics) and intermediate-term indicators (e.g., MACD, TTM Squeeze, McClellan Oscillator) show strong momentum, though many are approaching overbought levels.
Negative Divergences: Some indicators, such as the NYSE McClellan Oscillator and bullish percent indexes, show divergences, suggesting not all market segments are confirming the S&P’s strength.
Extreme Readings: Overbought conditions are evident in indicators such as the VIX RSI, short-term advance-decline ratio, and stocks above their 20-period moving average (86.4% of S&P stocks).
Volume: Below-average volume on options expiration day indicates lack of strong conviction, despite the recent price increases.
Economic and External Factors:
Moody’s Downgrade: After market close, Moody’s downgraded the U.S. credit rating from AAA to AA1 due to rising government debt and fiscal deficits (projected to grow from 6.4% to 9% of GDP). Markets couldn’t react immediately, but this may influence futures on Sunday evening leading into Monday morning.
Interest Rates: The 10-year yield closed at 4.44% (down from 4.46%), below the critical 4.5% level.
Economic Data:
Housing starts (1.361M vs. 1.383M expected) and building permits (1.412M vs. 1.45M expected) were weaker than anticipated.
Consumer sentiment dropped to 50.8 (vs. 55 expected), down from 52.2, reflecting ongoing pessimism.
Import and export prices showed minimal changes, with no clear tariff impact yet.
Trade Wars/Tariffs: Uncertainty persists beyond what has been announced, but the market anticipates positive developments, as seen in chart patterns.
Sector and Stock Performance:
Defensive sectors (healthcare, utilities, real estate, staples) outperformed, while discretionary, communication, and tech underperformed.
Financials and industrials showed strength, while energy was the only sector down.
Mega-cap performance was mixed: Apple slightly down, Microsoft and Nvidia up marginally, Tesla up over 2%, and Netflix hit another new all-time high.
Market Breadth:
Advance-decline lines for the S&P and NYSE hit new all-time highs, with volume leading price, a bullish signal.
New highs expanded, and new lows contracted, supporting the rally.
However, the 10-day advance-decline average weakened slightly, indicating potential short-term fragility.
Sentiment and Volatility:
Sentiment is positive (71, close to the 75 “overbought” threshold), but not yet extreme.
The VIX and related fear gauges are declining, reflecting reduced market fear, though some are at extreme negative levels, which is extreme positive.
Technical Outlook:
The market remains in a short-term uptrend but is not yet confirmed (below 20 on the ADX trend indicators).
Long-term downtrends persist in growth-to-value and discretionary-to-staples ratios.
Pivot points and moving averages suggest continued support, but overbought conditions and negative divergences warrant caution.
Looking Ahead to May 19, 2025:
Economic Calendar: Light week with the Leading Economic Index (LEI) on Monday, weekly mortgage applications on Wednesday, and jobless claims and housing data later.
Seasonality: May 19 is historically negative for the Dow, S&P, and NASDAQ, but the week after options expiration is positive 66% of the time.
Key Factors to Watch:
Reaction to Moody’s downgrade in futures and bond markets.
Developments in trade wars, tariffs, and geopolitical events.
Whether overbought conditions lead to a slowdown or pullback.
Bias: Positive in the short, intermediate, and long term, but overbought signals and divergences suggest potential for consolidation or a minor pullback.
Conclusion:
The market’s resilience continues to defy expectations of exhaustion, driven by improving technicals and optimism about economic prospects. However, overbought conditions, negative divergences, and external risks (e.g., Moody’s downgrade, trade uncertainties) suggest caution.

DISCLAIMER This video podcast is for entertainment purposes only. I am not a financial adviser, and you should do your own research and go through your own thought process before investing in a position. Trading is risky!