The recent softening of U.S.–China trade tensions has reinvigorated market optimism, pushing major indexes into bullish territory and lifting technical indicators into zones not seen since early spring. The S&P 500’s latest climb above its 200-day moving average, a key momentum benchmark, has sparked forecasts of record-breaking highs in the coming weeks. 

While traders remain cautiously optimistic, the evolving landscape of positioning, technical levels, and sentiment shifts suggests that this rally could be more than just a rebound. Erik Andersson, a senior market strategist at Horizon28, explores how these technical signals, in tandem with easing geopolitical risk, may shape the path forward—and whether this momentum is built to last.

Crossing the Threshold: The 200-Day Signal

On Monday, the S&P 500 closed above 5,750, breaching its 200-day moving average for the first time since March. In technical analysis, this crossing is viewed as a key reversal point—a line that often separates bearish sentiment from bullish momentum.

Chart analysts believe this milestone erases prior doubts about the market’s underlying strength. With no major resistance levels now expected until the 6,144 mark—its previous record high from February 19—the path appears clearer for the index to test new highs.

“The S&P 500 trading above the 200-day moving average is another indication that the trend is turning positive,” noted one technical strategist. “It increases the odds that pullbacks will be met with renewed demand.”

Rewriting Strategy: From Bear Market to Buy-the-Dip

Investors are now reevaluating their playbooks. Following the April 2 announcement of sweeping tariffs, the market briefly slipped into correction territory. But the recent truce has reversed that damage. Major indexes have now recovered nearly all of their year-to-date losses and sit within 1% of breaking even.

With this recovery, aggressive dip-buying behavior is reemerging. Traders are more willing to take positions on short-term pullbacks, betting that any retracement will be temporary and followed by upward momentum.

Technical projections are already pointing higher:

image from investing.com

• One forecast puts the next target for the S&P 500 at 6,600.
• Another sees 6,450 as the next waypoint, with potential to stretch to 6,645—representing a 10% gain from Monday’s close.

However, history offers a warning. Roughly two-thirds of S&P 500 bear markets since World War II initially recovered to within 2% of the 200-day average before reversing course and plunging again. That precedent keeps technical analysts on alert.

Support Matters: Where Bulls and Bears Could Meet

While momentum indicators are encouraging, support levels remain vital in identifying where buying interest may reappear. According to analysts:

• 5,720, last week’s high, has now become a key support level.
• A move below 5,580 could trigger a test of 5,425, a deeper support zone that would challenge bullish sentiment.

Monitoring these levels helps traders distinguish between healthy pullbacks and trend reversals, especially as positioning begins to shift in response to tariff relief.

Positioning Still Lags Sentiment

Despite the rally, equity exposure remains low by historical standards. According to Deutsche Bank, aggregate equity positioning is still near the bottom of its long-run range dating back to 2010. That leaves ample room for investors who had cut stock allocations during the tariff shock to re-enter the market, amplifying upward momentum.

Systematic trading models are already making moves. Commodity trading advisors (CTAs), which rely on trend-following algorithms, are believed to be flipping long on equities after Monday’s breakout past momentum thresholds.

This shift means that automated buying pressure could intensify the rally, especially if discretionary investors join the trend.

From Risk Aversion to Risk On

The combination of tariff de-escalation and a market moving through key technical thresholds has shifted sentiment dramatically. One strategist from a major bank called the move a classic “pain trade”—not because of its volatility, but because of how it catches underexposed investors off guard, forcing them to buy back in at higher levels.

Corporate earnings, once viewed as a looming threat to market stability, are no longer casting the same shadow. Fears of deterioration have subsided, giving traders even more reason to lean bullish in the short term.

Not a Guarantee, But a Strong Setup

While many traders are preparing for further gains, the reality remains nuanced. A move above the 200-day average does not guarantee sustained highs, especially in a geopolitical environment that can turn quickly.

Factors to watch include:

• Any renewed trade frictions could disrupt sentiment.
• Inflation data, which continues to influence rate-cut expectations.
• Corporate earnings, which, while stable for now, remain a long-term driver of equity valuations.

Conclusion: A Rally With Momentum, but Caution Underneath

The easing of U.S.–China trade tensions has provided the catalyst markets needed to break through long-held resistance levels. With the S&P 500 trading above its 200-day moving average, technical signals are tilting bullish, and investor appetite for risk is rebounding. Positioning trends and systematic flows suggest the rally could extend, especially if dip buyers continue to engage.

Yet, investors are still walking a fine line between optimism and realism. The trade truce is temporary, and broader macro risks remain. In this climate, technical strength may lead, but sustained gains will require more than momentum alone.