The S&P 500's Recent Rally: A Breakout or a Fakeout?

The S&P 500 has surged over 5% in the past two weeks, erasing early January losses and reclaiming its all-time high above 6,100. This impressive rebound has been fueled by several factors:

• Strong Bank Earnings: JPMorgan Chase and other major banks kicked off earnings season with solid results, boosting investor confidence.
• AI Investment Boom: The announcement of a $500 billion AI infrastructure initiative, with participation from companies like Oracle and OpenAI, has ignited excitement in the tech sector.
• Deregulation Promise: Anticipated deregulation has further bolstered market sentiment, with investors hoping for a more favorable business environment.

However, despite hitting a new record high, the S&P 500 experienced a setback. The index faced selling pressure immediately after reaching the milestone, failing to confirm the breakout and leaving a potential "double top" formation on the charts. This pattern suggests a possible struggle to sustain upward momentum.

What to Watch Next

The coming week will be crucial for determining the S&P 500's direction. Investors should closely monitor whether the index can break decisively above 6,100 and confirm the recent rally.

• Confirmed Breakout: If the S&P 500 sustains its upward momentum, the next target could be 6,250. This level represents a significant trend line connecting major highs dating back to July 2023.
• Failed Breakout: However, if the index fails to hold above 6,100, it could signal a false breakout and a potential pullback to lower levels. First target is 5,850.

The S&P 500 is at a critical juncture. The coming days will reveal whether this recent surge marks the beginning of a new leg higher or a temporary blip in a broader trend.