Watch These Key S&P 500 Levels As Chart Signals Slowing Momentum

The large-cap S&P 500 added 3.9% in the second quarter, driven by artificial intelligence (AI)-themed stocks, from chipmakers developing sophisticated processors that power the technology to utilities companies providing electricity for energy-hungry data centers that house AI infrastructure.

Interestingly, six out of 11 sectors in the S&P 500 lost market value in the quarter, showcasing the technology sector’s dominance on the market capitalization-weighted index, but also highlighting softness in other pockets of the market.

Below, we turn to technical analysis to identify key chart levels worth watching out for in the quarter ahead.

Chart Indicators Point to Weakening Momentum

The index broke out to a new record high in mid-May and traded in a narrow channel for several weeks before continuing to trend higher throughout most of June. 

However, more recently. several technical indicators point to slowing upward momentum. Firstly, a bearish engulfing pattern appeared on the chart Friday following the index recording an all-time high (ATH) earlier in the trading session. This price formation, which consists of a smaller bullish candle followed by a larger bearish candle that engulfs the first, indicates a shift in psychology among market participants and cautions of a potential reversal. 

Secondly, as the S&P 500 made a higher high last week, the relative strength index (RSI) made a lower high to create a technical divergence between the price and indicator, also suggesting a weakening of longer-term buying pressure.

Monitor These Key Levels Amid S&P 500 Retracement

The first level to monitor sits at 5,340, an area on the chart that may find support from a horizontal line that connects a series of price action between May and June.

A move below this level could see the index revisit the key 5,250 region, where it would likely encounter buying interest near the 50-day moving average, which closely aligns with a horizontal trendline that has flipped from providing resistance to offering support.

Finally, a more significant retracement could see a test of the prominent mid-April swing low at 4,954, an area that sits about 9% below Friday closing level of 5,460.

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As of the date this article was written, the author does not own any of the above securities.