As U.S. stocks approach new highs, technical analysts warn: market breadth has not improved, and a pullback may occur in the coming months

According to the Zhitong Finance APP, as technology stocks push major U.S. indices close to historical highs, technical analysts warn that unless more sectors join this rally, a pullback may occur in the coming months.

The S&P 500 index has rebounded strongly since the decline triggered by tariffs in April and is currently less than 1% away from its all-time high. However, to date, a key market breadth indicator—the proportion of S&P 500 constituents above their 200-day moving average—has changed little since May, and the equal-weighted S&P 500 index is still over 4% away from the historical peak set last November, representing broader market participation.

Chart observers from institutions like Janney Montgomery Scott point out that if other major market sectors such as financials, transportation, and small caps fail to provide stronger support, the rebound in U.S. stocks may lose momentum in the coming months. Before that, unless there is a significant unexpected event related to trade or geopolitics, pure momentum could still drive the S&P 500 higher.

Dan Wantrobski, technical strategist and research vice president at Janney Montgomery Scott, stated, "In the short term, the market is in a severely overbought state, with the main focus on the S&P 500 and Nasdaq 100 indices. If market breadth fails to rise in tandem with the breakthroughs of the S&P and Nasdaq, we will begin to be cautious about a possible pullback."

Dan Wantrobski and other analysts noted that based on the analysis of chart patterns, momentum estimates, and seasonal trends, August may see weak stock market performance. As technicians issue warnings, the deadline for tariff negotiations is approaching. Others on Wall Street have also emphasized the currently high valuation of the S&P 500, especially as the July 9 deadline set by U.S. President Trump for reaching an agreement with major trading partners nears, and the earnings season will begin shortly after this deadline.

Among the 11 sectors of the S&P 500, only information technology, industrials, and communication services have reached all-time highs. Meanwhile, the small-cap representative index—the Russell 2000 index—still has a significant distance from the high set last November (after Trump won the U.S. election, the market experienced a strong "risk appetite" rally).

However, some technical analysts see positive signals. Mark Newton, head of technical strategy at Fundstrat, stated that the strong performance of industrials, transportation, consumer discretionary, and financials this week (even if they have not yet reached new highs) is a strong reason to remain invested in the stock market.

Adam Turnquist, chief technical strategist at LPL Financial, further supports optimistic expectations by citing historical data. According to LPL's analysis, since 1954, if the S&P 500 reaches a new high at least 60 trading days after the previous peak, the average and median returns 12 months later are 9.7% and 8.6%, respectively The index last set a record high on February 19.

Nevertheless, this data is still not enough for Adam Turnquist to rule out the risk of a pullback potentially occurring at the end of summer. He stated, "It is not surprising to see a consolidation after the U.S. stock market rebounds to new highs." He pointed out that implied volatility in the market typically begins to rise in July and peaks around late September to early October, "In the current market environment, we prefer to buy on pullbacks rather than chase highs."

Some chart analysts also indicated that the Relative Strength Index (RSI)—a momentum indicator that measures whether an asset's price has been overbought or oversold in the short term—is expected to enter the "bearish" zone later this summer, which is often a precursor to a market reversal. Currently, the indicator shows that the S&P 500 is nearing the "overbought" range on a 14-day cycle.

John Kolovos, Chief Technical Strategist at Macro Risk Advisors, believes that the first technical support level for the S&P 500 is around 5,930 points, approximately 2.7% below the recent closing price. He stated, "I don't think the market will see a substantial pullback before late summer, at which point the weekly momentum indicators will be in a clearly overbought state, and seasonal cycles will also become a resistance factor."