Market Trends Indicate Possible Pullback for US Equities
The year 2025 has brought significant market shifts. Stocks began correcting early on, primarily due to China’s “DeepSeek” AI platform, which shifted investor views and reassessed the valuations of the “Magnificent 7.” Following President Trump’s “Liberation Day,” there was substantial selling pressure, pushing major indices briefly into bear market territory. However, recent trade agreements and reduced US-China tensions have helped stabilize the market. While bulls currently dominate, a pullback in US equities could be imminent for three key reasons:
Shift from Fear to Greed
Recent observations indicated that market sentiment had plummeted to fear levels, as highlighted by the CNN Fear & Greed Indicator. This indicator assesses market emotions based on seven different factors and showed extreme fear not witnessed in several years. Remarkably, a few weeks of price increases have shifted sentiment to a state of “Extreme Greed.”
Image Source: CNN
Nasdaq 100 Shows Overbought Conditions
Major technology stocks within the Nasdaq 100, including Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), and Broadcom (AVGO) have staged a significant rebound from prior lows linked to tariff concerns. Nonetheless, short-term signals, specifically from the Relative Strength Index, suggest these stocks may be overextended. When over 24% of Nasdaq 100 stocks exceed an RSI of 70, the returns the following week typically trend negative.
Image Source: @subutrade
Resistance at Fibonacci Levels
Since hitting panic lows on April 7th, the S&P 500 Index has surged over 20%. Historically, the average annual return of the S&P 500 is about 10%. With bulls regaining control, it’s important to remember that market movements are rarely straightforward. The S&P 500, now approaching the .786 Fibonacci retracement level, could encounter resistance and pause here.
Image Source: TradingView
Additionally, the S&P is nearing historical supply levels that might challenge bullish momentum.
Bottom Line
Given the swift changes in sentiment, prevailing overbought conditions, and approaching resistance levels, investors should navigate the short-term market landscape with caution.
