S&P 500 Technical Signals Flash Warning
Technical analysts are highlighting that a confluence of technical indicators is flashing caution for the S&P 500 and Nasdaq 100 as March begins. The S&P 500 fell 29.98 points to 6,878.88 on Friday, while the Nasdaq dropped 210.17 to 22,668.21, capping their worst monthly performance since early 2025. Traders are watching for potential reversals or breakouts amid heightened expiry-week volatility.
The recent market turbulence has seen the S&P 500 trigger the "Hindenburg Omen" six times in the past month. This technical indicator, named after the airship disaster, signals potential market weakness when a large number of stocks are hitting 52-week highs and lows simultaneously. February's market decline was influenced by several factors, including uncertainty over former President Trump's tariff policies after a Supreme Court ruling against his previous tariffs. Additionally, fears that artificial intelligence could negatively impact profitability and employment in the software sector have contributed to the downturn. The outsized influence of mega-cap tech stocks was evident when Nvidia's shares fell despite reporting record profits and a strong revenue forecast. Because Nvidia is the largest stock in the U.S. market by value, its decline had a significant downward impact on the S&P 500, even as most other stocks in the index rose. The "expiry-week" mentioned refers to the period when options contracts expire, which often leads to increased trading volume and volatility. As expiration nears, traders adjust their positions by buying or selling the underlying assets, which can cause significant price swings. Analysts at Goldman Sachs have raised the estimated risk of a larger market drawdown to 28%, citing slowing momentum in U.S. equities. Historically, when the S&P 500's six-month momentum has fallen by a similar amount, the index has seen an average decline of 10% over the following year. While the standard S&P 500 index is nearly flat for the year, the equal-weighted version is up almost 7%, highlighting the heavy concentration and recent underperformance of a few large tech companies. This divergence shows a rotation of capital into other sectors like energy and materials. Long-term valuation metrics also suggest caution. The "Buffett Indicator," which compares the total value of the stock market to GDP, is at a historically high level of around 222%. The last three times the indicator reached such extremes, it was followed by significant market downturns. Despite the recent weakness, some analysts point to historical seasonality, which tends to favor U.S. equities from March through August. February is often a weaker month for the Nasdaq 100, and the recent pullback is seen by some as a modest correction within a longer-term uptrend.
