Chart Advisor: Analyzing the 2025 Trends

By David Keller, CMT

1/ Medium-Term Market Trend Model Turns Bearish

2/ 5500 Becomes Minimum Downside Target For S&P 500

3/ Breadth Conditions Continue to Deteriorate

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1/

Medium-Term Market Trend Model Turns Bearish

Our proprietary Market Trend Model turned bearish last Friday on the medium-term time frame for the first time since October 2023.  While our long-term model remains bullish, suggesting the secular trend still remains intact, this bearish signal on the medium-term time frame tells us to focus more on capital preservation than capital growth.

Note how in 2024 we had five different bearish signals on the short-term time frame, yet the medium-term trend model remained bullish through the entire calendar year.  This configuration represented a buyable pullback within a cyclical uptrend, since the medium-term and long-term trends remained firmly in the bullish range.

While we’ve been tracking rotations in market leadership, as well as bearish momentum and breadth divergences since November 2024, the continued bullish reading on the medium-term trend model helped us remain constructive into Q1 2025.  There’s no guarantee that we’ll see a repeat of 2022 or any other bear market year, but the fact remains that the trends in 2025 are starting to very much diverge from the bullish path of 2024.

2/

5500 Becomes Minimum Downside Target For S&P 500

After Monday’s step selloff to start the week, the S&P 500 index is now down almost 10% from its most recent all-time high around 6150.  This means that the current pullback is basically in line with the July 2024 drawdown in terms of price and time.

With the key support level of 5850 in the rearview mirror, and with the 200-day moving average violated on Monday, we have established an initial downside target of 5500.  That would represent a 61.8% Fibonacci retracement of the August 2024 to December 2024 uptrend phase, where we would expect at least some sort of countertrend bounce.  

The 200-day moving average now becomes resistance above the current price action, and given that the S&P 500 reached an RSI oversold condition for the first time since the August low, we would be looking for other signs of short-term capitulation starting this week.

3/

Breadth Conditions Continue to Deteriorate

Up through the end of last week, some of our longer-term breadth indicators remained bullish, but Monday’s selloff appears to have taken one more breadth indicator off the “still bullish” list.  With less than 50% of S&P 500 members remaining above their 200-day moving average, we can now add “lack of breadth support” to the list of bearish market characteristics.

Going back to August 2024, that initial pullback from SPX 4600 appeared to be a minor pullback as this market breadth indicator remained above 50%.  With most S&P 500 stocks still above their long-term trend barometer, how bearish could things really be?

Then in mid-September, we saw the indicator push below 50% as the S&P 500 made a new swing low.  The market ended up going lower for another six weeks before eventually finding a bottom just above 4100 in late October.  Now with less than 50% of S&P 500 members remaining above their 200-day, the current corrective phase is beginning to look more like a major correction as opposed to a tactical pullback.

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Originally posted 11th March 2025