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Posted October 21, 2025 at 4:45 am
By Pongpat Khamchoo, CMT, CAIA
1/ Bearish Divergence in RSI Remains a Key Headwind
2/ Seasonal Weakness into Late October
3/ Market Breadth Still Supports the Longer-Term Uptrend
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Bearish Divergence in RSI Remains a Key Headwind
Since April 2025, the S&P 500 has extended its recovery following easing concerns over the trade war. However, the index has now registered two instances of bearish divergence in the RSI — first in late July, and again in October.
The July divergence was confirmed on August 1, 2025, when prices closed below the 20-day SMA. Yet that signal turned out to be false, as a sharp rebound the next day erased the bearish setup — the close moved back above the prior candle that had confirmed the negative signal.
This time, however, the picture looks more concerning. The latest bearish divergence was confirmed on October 10, 2025, when the S&P 500 closed below its 200-day SMA — a much stronger technical breakdown. Prices have since remained below the bearish candle of October 10, indicating persistent weakness in momentum. Unlike the earlier false signal, this divergence appears far more credible and could keep market sentiment under pressure in the near term.
Seasonal Weakness into Late October
A look at post-COVID seasonality (2020 onward) shows that, on average — as indicated by the white dashed line — the S&P 500 tends to weaken from the third week of October through month-end.
Breaking it down by year:
Overall, historical seasonality suggests a 60% probability of market softness during the latter half of October. While not decisive, this bias adds to the list of near-term headwinds already weighing on sentiment.
Market Breadth Still Supports the Longer-Term Uptrend
While short-term signals have turned cautious — with RSI bearish divergence and seasonal weakness pressuring sentiment — the broader market structure remains constructive.
Three key factors point to continued long-term strength:
Given these conditions, any short-term pullback may offer a buy-on-dip opportunity, especially since seasonality turns positive again in November and December — setting up conditions for a potential year-end rally.
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Originally posted 20th October 2025
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