Weekly Update S&P 500

Hello everybody, and welcome to this week’s analysis of the S&P 500. We had another quite volatile week, with the index closing down about 0.6%. As you can see on the 4-hour chart, we experienced a strong gap down on Monday, followed by further downside pressure into midweek. The market made a low on Wednesday, after which we saw a strong rally back higher.

This move tested the 6,800-point area on the downside and then recovered enough to close near the 6,900-point zone, which remains an important level. The initial drop was driven by an escalation around the US–Greenland topic, followed by a de-escalation later on, which helped fuel the rebound. Overall, the drop from the highs was around 3% in a short period of time, while the rebound into the end of the week recovered roughly 2.2%. So despite significant volatility, the net move for the week was relatively small.

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Rising Wedge Finally Breaks to the Downside

Now let’s look at the daily chart. Two weeks ago, we discussed the rising wedge formation that had been building since November and marked several important support zones in case that formation broke. On that earlier chart, I highlighted the 6,800-point zone as a key support level if the wedge were to break.

Looking at the updated daily chart including this week’s price action, we can clearly see that the wedge pattern was finally broken to the downside with the sharp drop at the start of the week. The low on Wednesday tested the 6,800-point zone perfectly, exactly the level we had identified earlier. Price then bounced strongly from that area, confirming its technical importance.

Now, after breaking a wedge pattern to the downside, the natural question is what comes next. One common technique is to look at the so-called measured move. This involves measuring the width of the wedge at its starting point. I marked this on the chart using two “X”. That distance can then be projected downward from the last top to estimate a potential downside target.

Applying this method here suggests a possible move toward the 6,600-point area. I marked this level on the chart with a red line. This is not a certainty, but it provides a technical reference for how far a move could extend after a wedge break. To be honest, the break so far and the test of 6,800 points feels somewhat small relative to the amount of compression that built up over nearly three months. That is one reason why additional downside remains a realistic possibility.

There is another important aspect on this chart that I want to discuss, which is a newly drawn trend channel. Once again, I am using the green, gray, and red shaded areas as reference zones. This channel is parallel and is meant more as a guiding framework than a confirmed structure at this stage.

The upper red shaded area aligns with the recent all-time highs and acts as resistance. Parallel to that, the lower green shaded area connects with the November low and defines potential support. In the middle, the gray shaded area lines up well with this week’s low. What is interesting here is that the measured move target from the wedge break also aligns closely with the 6,600-point area, creating a zone of confluence if price were to move lower.

Short-Term Risk Outlook

Now let’s turn to our short-term risk outlook. In this indicator, the S&P 500 is shown in black, the buy score in green, and the sell score in red. The bottom panel shows the broader context, the top right shows a zoomed-in view, and the top left displays the resulting buy and sell signals as vertical green and red lines.

With the sharp drop at the start of the week, the sell score increased to minus five, which triggered a sell signal. You can see this as a red vertical line on the top-left chart. In response, we reduced our position size according to the signal. Based on the daily chart structure, I am expecting more downside in the coming weeks, and it would not be surprising to see additional sell signals that lead to further reductions in exposure.

Finally, I want to introduce a new chart that we will also be using going forward: the mid-term risk outlook. This model combines several different signals and indicators across multiple asset classes, weighted into a single framework. It covers data going back to 2017 and defines four distinct risk zones for the S&P 500.

The red zone represents very high risk, orange indicates high risk, gray indicates low risk, and white represents very low risk. We will review this chart regularly, and if something changes, we will clearly communicate it.

Looking at the current reading, you can see that during the correction starting around November and the sideways movement over the past three months, the risk level was very high. Recently, however, the model has shifted back into the gray zone, indicating a low-risk environment. This suggests that the corrective process may be nearing its end, with the potential to move back into a white, very low-risk zone if upside momentum resumes.

We also have an article (Update: January 20, 2026) on the broader S&P 500 outlook. From a big-picture perspective, the technicals on the weekly chart are less positive and suggest that another correction could be developing in the coming weeks.

For subscribers it is very important to follow our risk management measures that we provide with all our services to protect against losses in case support zones break

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S&P 500: Seasonality Insights for 2026

When we look at the seasonality of the S&P 500, the last quarter of 2025 did not line up very well with the typical seasonal pattern. That’s not a problem, though — seasonality should be seen more like a weather model. It gives us a possible direction the market could take, not a precise forecast.

We did see weakness in October, which actually matched the seasonal pattern, as seasonality often points to a softer October. However, we did not get the strong year-end rally that seasonality would normally suggest.

Looking ahead to the first quarter of 2026, the seasonal pattern points to potential weakness in January, followed by rising prices in February, with a possible peak during that month. After that, seasonality suggests renewed weakness into March to start the year. We’ll have to see whether the market follows this pattern.

Seasonality isn’t a perfect roadmap — it rarely plays out exactly the same way each year. But it does offer useful context. Right now, it suggests that while the broader trend remains positive into year-end, a short-term correction could still unfold before the next strong push higher into December.

Of course, this isn’t a guarantee — it’s more of a roadmap based on past patterns. Ultimately, seasonal trends provide valuable context, but they must be considered alongside current market dynamics and technical analysis for a clearer picture.

Track Market Risk with Our Dashboard

Our Market Dashboard provides a quick overview of the current market conditions and, more importantly, the associated risk. You can view a chart of one of our tools, the Risk Level Indicator, showing predicted risk from 1998 to 2025. If you are interested, you can visit our Dashboard site here.

The world of finance is complex and includes many technical terms. For explanations of these terms, I recommend using the Investopedia dictionary.