S&P 500 Oversold: Is a Short Squeeze and Bounce Coming?

The S&P 500 appears to be oversold in the near term, increasing the likelihood of a short squeeze that could lead to a bounce towards 5,850–5,900. Currently, the index is trading around 5,773 and has fallen below the 200-day moving average (200MA) in pre-market trading.

However, over the past two trading sessions, the index has climbed and closed above the 200MA, suggesting potential support and signs that selling pressure may be weakening. A close below 5,732 could trigger further concerns, potentially leading to a decline toward 5,700, with a possible overshoot to 5,670.

Technical Indicators Point to Oversold Conditions

Following a sharp 5–6% decline in recent weeks, technical indicators suggest that the S&P 500 is now in oversold territory:

• MACD (Moving Average Convergence Divergence): The indicator is deeply oversold and approaching levels seen during the August sell-off.
• RSI (Relative Strength Index): Currently reading 30, signalling borderline oversold conditions.
• Stochastic Oscillator: Potentially forming a bullish divergence on the daily chart, hinting at a possible reversal.

Will the S&P 500 Bounce?

Considering the August price action and the alignment of key technical indicators, a relief bounce could materialise in the coming days or early next week. Traders and investors should closely monitor support levels and market sentiment for confirmation.

Key Takeaways:

✅ The S&P 500 is trading below the 200MA, but recent price action suggests possible support.
✅ A short squeeze could lead to a bounce towards 5,850–5,900.
✅ Technical indicators, including MACD, RSI, and Stochastic, signal oversold conditions.
✅ A close below 5,732 may trigger further downside toward 5,700–5,670.
✅ A potential reversal may occur in the coming days or early next week.