S&P 500 ready to rally?

Quick recap: last week

A week ago, the Kvarn Pulse newsletter was written in a cautiously optimistic mood. Over the previous week, the equity market had brightened somewhat, and the S&P 500 index had risen back above its 50-day moving average. Market breadth was improving, and we saw signs that the worst of the technology sector's weakness might already be over.

S&P 500 ready to rally?

A week later, the overall picture in the equity market looks much the same. The S&P 500 index dipped below its 50-day moving average late last week, but has recovered in recent days and risen back above all of its moving averages.

It is worth stressing again that reading the state of the equity market is quite difficult right now, and interpretations have to be based on fairly weak signals.

The S&P 500 index has moved sideways for almost three months without any discernible trend. In our view, until the index breaks out of its 7,550–7,800 point range, all interpretations should be treated with clear caution, and strong conclusions should be avoided.

With these limitations in mind, the equity market currently looks fairly promising. The S&P 500 index appears to have drawn a marginal “higher high” during October and, over the past week, also a “higher low”.

Whether this is a genuine emerging uptrend or just noise within the sideways range will only become clear in hindsight. Right now, however, it is hard to see grounds for a particularly pessimistic reading.

This reading could reverse quickly if we were to see the S&P 500 index fall below 7,600 points. As long as that does not happen, our primary expectation is cautiously optimistic.

This cautious optimism is supported by the fact that we also see the Nasdaq 100 index edging back above its 50-day moving average.

We have also seen a clear pickup among smaller companies. The Russell 2000 index has risen back above its 200-day moving average. It is also above its 10- and 20-day moving averages, and both of these averages have turned higher.

The technology sector, which weakened sharply in the first half of October, has also started to pick up. The ratio of the technology sector (XLK) to the rest of the S&P 500 (SPXT) has risen above its 50-day moving average in recent days.

Relative strength in the technology sector often points to growing risk appetite among investors and is, in principle, an encouraging sign.

Next, we will be watching whether we start to see similar signs in other key ratios as well.

The ratio of high-beta stocks (SPHB) to low-volatility stocks (SPLV) is still fairly far below its own 50-day moving average.

The same applies to the ratio of growth stocks (RPG) to value stocks (RPV).

So we cannot yet say that the equity market has clearly turned risk-on. Over the past week, however, the direction of change has been encouraging.

Another encouraging development has been the improvement in market breadth. Almost 60 percent of S&P 500 stocks are currently above their 50-day moving average.

The breadth of the Nasdaq 100 index has also remained quite strong.

It is also encouraging that the VIX index has returned below its 200-day moving average. As long as this remains the case, the risk of an immediate correction looks considerably smaller.

In the bond market, the MOVE index has also turned lower over the past week.

The risk of a correction, which was clearly elevated in recent weeks, now appears to be receding rather than growing. Risk appetite in the equity market appears to be recovering, and we see good conditions for equity indices to continue the emerging uptrend seen in recent days.

It should be stressed, however, that the situation may change quickly. As we noted earlier, all readings of the equity market are currently based on fairly weak signals. In our view, the signals we are seeing right now are clearly positive in tone, but their reliability is not particularly high, which is why the situation still requires constant monitoring.

Gold trending lower

In precious metals, the gold price has continued to fall. A week ago, we noted that the $4,100 support level appeared to be giving way, and that is indeed what has happened. The next question is whether the round number of $4,000 will form a support level where the decline could come to a halt.

For now, we are not yet predicting a turn in the gold price.

The price of the other precious metal, silver, has fallen over the past week below both its July 2026 lows and its October 2025 highs.

This development forces us to prepare for the possibility that silver, at least, may still have some way to go before finding a lasting bottom.

Of course, there is no guarantee that gold will follow the path set by silver. Right now, however, we see clear downside potential for both precious metals, with no signs of a turn higher.

Bitcoin at $80,000

The price of the largest cryptocurrency, bitcoin, has moved tightly around $80,000 over the past week. The price has fallen below its 50-day moving average, and the Relative Strength Index has come close to 40.

From a technical analysis perspective, bitcoin's price action is approaching the point where it would start to be justified to change our reading from sideways movement to an outright downtrend. We are not quite there yet, however. As long as the bitcoin price stays above $80,000, we think it is still justified to see October's slightly downward price action as nothing more than a healthy consolidation after a strong rally.

Indirect support for this reading comes from the fact that over the past week, we have seen the altcoin market strengthen slightly against bitcoin. If the crypto market were really moving lower, we would expect this ratio to resume its early-October decline fairly quickly.

The at least temporary stability in the altcoin market, combined with the cautiously positive developments we are seeing in the equity market and in tech stocks in particular, keeps us from turning particularly pessimistic about the crypto market. If the bitcoin price were to fall clearly below $80,000, we would have to revise our reading, but for now we still see reasonably good conditions for the crypto market to continue its rally.

Summary

In summary, the financial markets have turned in a clearly more promising direction over the past week.

In previous weeks, we have seen signs in the equity market pointing to the risk of a correction. Despite plenty of warning signs, however, we have not seen significant moves lower at the S&P 500 index level, only strong rotations between equity market sectors.

Right now, the risks of a correction appear to be diminishing. If the developments of the past week continue, the overall picture in the equity market could start to look very promising.

It is worth keeping in mind, however, that the situation can still change quickly. There are currently plenty of uncertainties in the air, not least next week's US midterm elections. Investors should therefore stay alert, as an environment like this has the potential for striking moves in the financial markets, both up and down.

Wherever the market goes, we will keep following the situation and keep you up to date, so stay tuned!