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There’s a pullback coming. I don’t know exactly when, but the setup is so clear that I’d be shocked if it doesn’t happen soon. And when it does, I’ve got five specific levels marked on my charts that I’m watching closely.
The market is sending warning signs. We’ve seen one of the biggest rallies in recent history even though only about half the stocks are trading above a major long-term moving average (MA).
That isn’t broad strength — it’s a market running on fumes.
We’re also sitting at levels we haven’t seen in five years. When markets hit extremes like this, they never stay there forever. And when traders keep asking “What about the put to call ratio?,” the answer is simple — it’s at a five-year low, which shows extreme complacency before a shakeout.
All of these factors point to the same outcome: A mean reversion is coming, and it’s likely to land right at the levels outlined below.
The 5 Levels I’m Watching
The S&P 500 (SPY) is heading toward the eight-day EMA, and that’s the first meaningful magnet on the chart. It’s only a matter of time before price reconnects with that level.
The Nasdaq 100 (QQQ) is also lining up for a move back toward the eight-day EMA along with a trend line I drew a couple months ago. Price has been extended and that zone is overdue to be retested.
Semiconductors (SMH) are moving toward a key reference level, they’ve outpaced the rest of the market and they’re primed for a pullback.
The S&P 500 Equal Weight index (RSP) is positioned to reconnect with the 50-day MA. When it stretches too far above its trend, it tends to snap back quickly.
The Russell 2000 (IWM) is also setting up for a move back to the eight-day EMA, which aligns with another short-term support level I’ve been following. Small caps won’t escape the broader pullback.
Why This Matters Now
This outlook isn’t based on technicals alone. The underlying conditions are clear: Only half the Nasdaq is trading above long-term trend levels, we’re sitting at extremes not seen in five years and sentiment indicators like the put/call ratio are signaling excessive optimism.
When breadth breaks down as sentiment overheats, mean reversion becomes the most probable outcome.
For anyone trading today, the intraday level to watch on SPY is $708.12. I’ve marked three short-term levels that matter. If price pushes above them, that’s constructive. If not, the longer-term downside targets come into play quickly.
The advantage of having these levels outlined ahead of time is simple — you’re not reacting emotionally when the pullback hits. You know where support should appear, where better entries may form and how to position with confidence instead of guessing.
I hope that helps!
Roger Scott
Roger Scott Trading
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