The S&P 500 has risen more than 11% since the October dip, showing massive momentum and reaching the previous peak from the summer. However, after this rapid surge, the momentum appears to be waning. Over the last few days, the movement has turned flat, despite market expectations of the Fed cutting rates sooner than previously anticipated. This may serve as an early warning signal that profit-taking actions in the stock market could be imminent.

Another warning sign is emerging from the weakening market breadth. Despite the nearly flat movement, the number of stocks rising has decreased over the last two days, while the number of declining stocks has increased. Yesterday, 410 of the S&P 500’s stocks experienced declines, with only 91 advancing. Such numbers typically occur during sharp downtrends or near the start of downtrends.

(S&P500 – Number of Members with Price Decline and Price Advance)

Another warning signal is coming from the MACD indicator. Despite the last two days of stock declines, the ratio of members with their MACD above zero is at 85%, and the ratio of sell signals from MACD for S&P 500 members is rising rapidly. Whenever these conditions occur and the S&P 500 is not rallying in a way similar to the pre-pandemic era, the index usually forms a top, as observed in late 2022 and the summer of 2023.

(S&P500 – Number of Members with MACD Signals and MACD>0)

The S&P 500’s own MACD has recently given a sell signal, and it came from a high level. Despite the momentum slowing down, it remains relatively high. Even the 13-day moving average is still supporting the price, and there is no sell signal from the relative momentum index yet. The previous top and the nonfarm payrolls data will likely play a crucial role going forward. Multiple closes above 4635 might fuel another move towards the north. On the other hand, slowing momentum and weakening market breadth are signaling caution to market bulls.

(E-mini S&P500 Daily Chart)