What Happens When the S&P 500 Trades in a Bullish Channel

“…there are multiple ‘known, unknowns’ (known events, unknown outcomes). Among them include the Federal Open Market Committee (FOMC) meeting…trade talks between President Trump and Chinese President Xi Jinping…Finally, we move into the teeth of earnings season this week, with mega-cap tech heavyweights such as Alphabet (GOOG), Meta Platforms (META), Microsoft (MSFT), Apple (AAPL) and Amazon (AMZN) due to report…We cannot forecast the outcomes or the reactions to these events, but we focus instead on the SPX’s price action as the upcoming events unfold.”

- Monday Morning Outlook, October 27, 2025

Multiple events unfolded last week, with the Federal Open Market Committee (FOMC) lowering the fed funds rate by 25-basis points and announcing that quantitative tightening would end on Dec. 1. U.S. President Donald Trump and Chinese President Xi Jinping met with some agreements in place for a year-long truce. And tech heavyweights reported earnings, with little net impact on the S&P 500 Index (SPX -- 6,840.20). Meta Platforms (META) and Microsoft (MSFT) experienced significant negative reactions, but those were balanced out by positive reactions from Alphabet (GOOGL) and Amazon.com (AMZN).

Thanks to last Monday’s gap higher (the second in as many trading sessions) on signs that U.S.-China talks were headed for a positive outcome, the bulls retained control, even as Friday’s close was below Monday’s close. After the passing of these potentially market-moving “known, unknowns” the SPX remained firmly above its rising 30-day and 50-day moving averages. Both of which are below the first level of potential support at 6,760 -- the site of former October resistance, which is 10% above the February closing high before the “Liberation Day” (tariff-related) correction that persisted into early April.

In fact, the SPX has been moving higher in an orderly fashion, as depicted by a channel connecting higher lows since May 23 -- a short-term low at the 2024 Election Day close -- that defines the lower boundary and higher highs since early July defining the upper boundary of this channel. There have been hesitations within this channel at levels 10% above the 2024 close and 10% above the previous all-time high in February and only one major close below the 30-day moving average, which was quickly resolved to the upside. 

For what it is worth, the last three times that the SPX traded in bullish channels were 2021, 2023, and 2024. The former developed in November 2020 and persisted until September 2021. A break below the lower boundary signaled a more notable pullback but did not signal a major correction, which eventually occurred beginning in January 2022. Notably, this correction began after a rally into the extension of the trendline connecting higher lows of the channel from November 2020 to September 2021.

The 2023 and 2024 bullish channels were much shorter in duration, lasting only four months. Breaks below the lower boundary of these channels signaled immediate corrections.

As far as the current channel I am observing, the top of the boundary has been in place for four months, while the bottom boundary has been established for five months.

Unless and until there is a firm break below the lower boundary of the bull channel, which is currently in the vicinity of the important 30-day and 50-day moving averages, I consider the bulls to be in control. The bottom of the channel will be at 6,730 by Friday of this week and at the important 6,760 level early next week. The 6,760 level remains the first level of potential support on a pullback.

The upper boundary of the channel will be at 6,997 at week’s end, just below the key 7,000-millenium level, where there is heavy call open interest (OI) that could act as a short-term lid. Last Monday’s SPX high at 6,920 is considered the first level of potential resistance.

The government shutdown still lingers and with that we don’t get the usual economic data. But the heart of earnings continues, so there is the potential for drastic company-specific stock movement and little index movement if major upside and downside gaps balance each other out.  Advanced Micro Devices (AMD) and Palantir Technologies (PLTR) are among tech mega-caps reporting that could influence cap-weighted indices.

New short interest figures as of mid-October were released last week. There was a slight downtick, but short interest on SPX component stocks remains near multi-year highs with index achieving an all-time high again last week. This combination of SPX all-time high and component short interest multi-year high remains one of my strongest themes to the long-term bull case.

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