MW The S&P 500's race to a new record may tip it into a bigger pullback. Here's why.

By Jamie Chisholm

BTIG strategist says weak seasonal factors are looming.

When U.S. investors return from the long weekend they will be faced with a stock market looking well-positioned to break out to fresh record highs.

But any such move into virgin territory may precede a "deeper pullback" as negative seasonal factors take hold.

That's according to Jonathan Krinsky, technical guru at BTIG, who in a note published Sunday, said the S&P 500 SPX is at an inflection point as a multi-month trading range nears resolution.

The S&P 500 finished on Friday just 0.07% below the record close of 5827.04 hit on January 10. The Wall Street barometer has fluctuated within an ever-decreasing range as sell-offs on concerns about sticky inflation and tariff uncertainty have been counteracted by a better-than-expected corporate earnings season.

These vacillations have left the S&P 500's chart showing a flat-topped flag shape - as shown below - a technical pattern that is often resolved by an asset price breaking above the upper bound of the range.

"The SPX has spent the better part of the last three months in a pretty narrow trading range," said Krinsky. "While there is nothing bearish about new highs, and while SPX looks poised to breakout of that multi-month trading range, we are entering a weak seasonal period with weak momentum."

Krinksy said he is concerned that any marginal new high might be followed by a deeper pullback into March, though unless bears can push the S&P 500 back below 6,000, bulls will remain in the driving seat.

One reason the market may be more vulnerable than it seems is that although the S&P 500 is near its highs, less than 60% of its components are above their 50-day moving averages, suggesting a notable chunk of the market are not enjoying an upward trend.

There has also been another failed broadening of the market in relation to small cap stocks, with their ability to not just participate in the rally but to outperform remaining elusive.

This can be illustrated by looking at the iShares Russell 2000 ETF relative to the S&P 500, which the chart below shows has dipped to its lowest since July.

However, there are areas of the market that Krinsky is upbeat about, notably materials, which he said have just broken out of a multi-week range. He likes the charts of Corteva $(CTVA)$, International Paper $(IP)$, Steel Dynamics (STLD) and Vulcan Materials $(VMC)$.

Casino and gambling stocks as a group are also now looking at an upside breakout after trading sideways, said Krinksy. And he likes the charts of DraftKings $(DKNG)$, Accel Entertainment $(ACEL)$, Boyd Gaming (BYD), PENN Entertainment $(PENN)$ and Las Vegas Sands $(LVS)$.

-Jamie Chisholm

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February 17, 2025 06:01 ET (11:01 GMT)

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