S&P 500 analysis: Technical Tuesday - February 25, 2025

S&P 500 analysis: US index futures came off their earlier lows as European markets bounced back to trade higher across the board, with the major indices here showing gains of 0.5 to 1.3 percent by midday in London. Highlighting expectations of increased government borrowing to finance higher defence spending, European defence stocks such as Germany’s Rheinmetall, the UK’s BAE Systems, and Italy’s Leonardo all advanced. It remains to be seen whether the recovery for European indices will last heading deeper into the session, following the recent volatility amid trade tensions. The growing uncertainty surrounding the Trump administration’s policies has prompted investors to scale back risk exposure. This has boosted the appeal of safe have Treasuries, causing their yields to drop. Adding to concerns, Trump signalled on Monday that tariffs on Mexican and Canadian imports are set to proceed. As far as US indices are concerned, the benchmark S&P 500 has broken a few important short-term support levels, increasing the risks of heightened volatility in the near term outlook.

Watch the tech sector

The technology sector stocks have retreated in recent days and remain the dominant force behind the volatility on Wall Street. The latest US efforts to curtail China’s technological advancement triggered a sell-off in chipmaker stocks overnight, causing the positively correlating Bitcoin to slide below the $90,000 mark and extend its recent drop.

Shares of semiconductor giant Nvidia managed to bounce back in premarket trading, but let’s see what happens when the cash markets open for trading. With Nvidia’s eagerly awaited earnings report due on Wednesday, another wave of market turbulence could be on the horizon should the numbers or outlook disappoint expectations. Given the chipmaker’s enormous influence on broader indices, its results could prove to be a decisive market-moving event, make no mistake about it. A strong set of results could see the S&P head back towards its all-time highs.

Key events to watch this week

Well, the macro calendar is relatively quiet this week, but we do have US consumer confidence, as well as speeches from Fed’s Lorie Logan, Tom Barkin, and Michael Barr to look forward to today. On Wednesday, we will have US new home sales, before the attention turns to the main event of the week: Nvidia earnings.

On Thursday US GDP and initial jobless claims will be released and there will speeches from multiple Fed officials. On Friday, the focus will turn to the Fed’s favourite inflation measure - core PCE price index, and we will have a couple of other second tier data. Also on Friday, Japan’s Tokyo CPI, industrial production and retail sales will be in focus for local Japanese and the FX markets.

Technical S&P 500 analysis: key levels to watch

Source: TradingView.com

The S&P 500 staged a decent rebound from its earlier lows yesterday, before fading into the close. As a result, we finally had some downside follow through, after the index had formed a bearish candle on Friday. With the selling causing a few short term support levels and moving averages to break, dip buyers, who have continually supported the market, must now be wondering whether it makes more sense to wait for a deeper pullback before pulling the trigger. That said, after a 3-day drop, the short-term overbought conditions have been worked off, which could mean the selling pressure could weaken. Whichever scenario is the case, it is important to await further price action to become more confidence about the trend direction.

The bears will argue that they have finally some solid bearish price action to work with after continually being denied the opportunity to exert significant pressure during this multi-year bull run.

Anyway, the S&P has now taken out Friday’s low at 6011 and swept up liquidity below the psychologically significant 6000 handle, thereby meeting its short-term bearish objective. The question now is: where does the index go next? If goes back above the 6000 hurdle on a closing basis, then that would be a positive outcome one would think.

In the event we see further weakness, the next major bearish objective is at 5910-5920 area, marking the most recent lows prior to the index breaking out to a new all time high. Below that area, 5780 comes into focus next and then 5738, the latter marking the 200-day average.

On the upside, the first line of resistance is now the broken 600 hurdle, with further resistance is expected at 6033, followed by 6075—both former areas of support-turned-resistance that could now pose a challenge for bullish momentum.

Whether you are a bull and bear, you should always proceed with extra precautions, especially if you are bearish given the remarkable strength of equities in recent months. For the bulls, a corrective pullback would not be unwelcome, as it could pave the way for more attractive entry points at some later point in time.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

1. Open an account, or log in if you’re already a customer 
   
   • Open an account in the UK
   • Open an account in Australia
   • Open an account in Singapore
   
   
2. Search for the company you want to trade in our award-winning platform 
3. Choose your position and size, and your stop and limit levels 
4. Place the trade