S&P 500 Pullback Coming? The Exact Levels to Buy the Dip

Added: 2026-05-11

[00:00:00]The S&P 500 keeps pushing to record highs, but are technical warning signs starting to emerge under the surface?

[00:00:06]Adam Turnquist is chief technical strategist for LPL Financial and joins us now. Adam, great to have you.

[00:00:13]>> Hey, great to be here. Thanks for having me.

[00:00:15]>> So, Adam, the S&P 500 is riding this six-week winning streak, up over 15% in that stretch. When you look underneath these record highs, what do the charts tell you about the health of this rally?

[00:00:28]So I think it's really just a meggaap story and that is nothing new to this bull market. For the last several years we've seen the mega caps lead the market through these really important resistance levels and then the others follow and breath expands. So right now when you look underneath the surface breath is okay not great for a market making new highs but again it's those more mega cap names that have have powered the S&P 500. Even last week's record high rally, five stocks contributed about 3/4 of the overall gain. But you also have midcaps breaking out, small caps, even micro cap stocks making new highs. So I'd push back against this idea that it's a very narrow lead market when you start looking beyond the mega cap names even though they're not showing up in the S&P 500 breath metrics.

[00:01:15]>> So the fact that a handful of mega cap stocks are doing most of the heavy lifting, that's not a warning sign. It's just the reality of today's market.

[00:01:23]>> That's the regime that we're in. And when you look at breath and you back test it over the last several years, really since the bull market started, there's actually a negative correlation between market breath and actual 12-month returns from there. So, it's not surprising, especially when you look at the fundamental story in the mega cap names. They're contributing the most to earnings, especially this quarter in reporting season. You have the tech sector uh I think reporting north of 50% overall earnings growth. A lot of the AI capex beyond those names is contributing a lot. So you have your best players on the field and they're performing very well. I think the the easier explanation right now.

[00:02:01]>> I was taking a look at your notes and you say 54% or about half of the index is above their 200 day moving average.

[00:02:09]Why does that matter? And is that a sign that there could be more room to run because others will play catch-up or could that be a sign to the to the other way?

[00:02:21]>> Right. So we think of it as the the field of dreams. If you build it, they will come. And 54% is not great. As I mentioned, normally when the market's within 3% of a record high, about three quarters of S&P stocks are above their 200 day moving average. So there is room for breath to expand as this rally continues. We think there's plenty of gas in the tank when you look at retail participation in this recovery. Pretty underwhelming in terms of their overall positioning. Yes, the market is a little bit short-term overbought here and a bit stretched above the 50-day moving average, but the path of least resistance remains higher and I think those pullbacks will be bought, especially from that retail crowd that kind of missed out since March 30th. So, if I'm an investor watching this right now, do I feel good about this rally or do I should I be getting more careful here?

[00:03:12]>> It is a durable breakout when you look at the technicals through 7,000. We've had great momentum, really unrelenting momentum over the last several weeks.

[00:03:21]There is this potential here for a bit of a pause or even a pullback, but I think using support at maybe the 20-day moving average or even the 7,000 point area would be a pretty attractive entry point. I'd be surprised to see the market break below that level and this be a false breakout when you look at the collective technical evidence here.

[00:03:41]Certainly, the technicals line up well.

[00:03:43]They marry well with a very strong fundamental story. And I guess you could say even the macro environment improving a little bit, but still kind of a question mark there on what's going on with in in the Middle East.

[00:03:54]>> So dig into those levels a little bit more. Where do you actually think we'll go from here? What are the actual levels on the S&P 500 that you're watching aside from the 7,000 one that you mentioned?

[00:04:05]>> Yep. So the 20-day moving average um just below current price about 2 to 3% below current levels. There's some price gaps in that in that r range as well.

[00:04:15]right around the 20-day moving average.

[00:04:17]If you break that, you kind of have 7100, 7115, we'll call it some intraday lows and then of course that 7,000 point milestone. Normally, when you break out above a major resistance level, you get a little bit overbought. It's not surprising to see the the index pull back to that prior resistance level at 7,000. That would be completely normal type of of price action throughout history. So wouldn't be a shocker to see even a 5% type of draw down in the S&P 500 on a near-term basis. But again, we would think of that as a attractive buying opportunity to get back into this bull market.

[00:04:55]>> So those levels were to the downside.

[00:04:57]What about to the upside with the S&P at at 7412, call it, how much higher could it go?

[00:05:04]>> So we're revising or our year-end price target is under review, we'll call it, right now. And we actually just hit the point and figure analysis. I won't go into to what the point and figure uh readings, but 7,400 was the level we were looking for on this breakout, but we'll we'll see what the earning story plays out for this quarter, where our numbers come in in terms of our upside price target. So, we haven't published that yet. So, we're we're holding out, but look for a new um upside in terms of our price target for year end here. And what is it that makes you more bullish than you previously were uh when you had the 7,400 price target?

[00:05:44]>> So, I think it's really the earnings story and it's been extremely impressive considering what's going on in the macro backdrop. Even in March, you had earnings improve in terms of year-end estimates, first quarter estimates. They moved higher in the wake of oil going to 120 a barrel and a lot of question marks over the straight of Hermuz. When is it going to reopen? But the earning story has been nothing but resilient. When you look at the capex spending as well, that's been a big driver. That those numbers continue to go up. We're looking at over 700 billion from the main hyperscalers in terms of spending. That flows down to other market cap levels beyond those meggaap names. So we think that spending story will remain a really solid tailwind for stocks this year.

[00:06:28]So you would say that the earnings growth justifies current valuations even in tech because we've seen a really strong runup in a lot of the names there or are you starting to get worried at least in that space that the market's pricing in perfection here?

[00:06:44]>> I don't think so because you look at the tech valuations right you were at over 30 times forward earnings back in October. We've reset, I call it a hard reset over the last couple months here with a correction in the tech sector as earnings actually improved. So the E in the PE ratio moving higher and valuations right now I think around 23 times forward earnings. It's it's a pretty attractive valuation when you think about the secular tailwind here from AI and all of that spending. You look at the growth expectations for the tech sector. So we would argue that they're pretty attractive. We actually upgraded the sector to an overweight a few weeks ago and we think there's plenty of room to run and a lot of people are benchmarking this rally in the tech sector off the March lows. It's had a a very impressive run, but technically you can make the case it's really just starting to break out above those October highs.

[00:07:37]>> What is the biggest headwind for the market right now? It doesn't really seem to be higher oil, which is back close to $100 a barrel right now.

[00:07:46]Yeah, you would think that would have a little bit more of an impact on price action, but equity markets have responded much differently to higher oil over the last couple weeks than they did in March. And you can see it in the daily change in oil versus the daily change in the S&P 500. So, there is some level of complacency in equity markets in terms of how they're viewing what will come out of the of the war with Iran. I think they're baking in relatively optimistic expectations for the straight to reopen and things to normalize. But the biggest headwind is certainly the macro environment and of course that's higher oil. We don't know when the straight's going to reopen. At what cost is it going to be to transit the straight of hormine on that. So I I think that's playing out in the rates market as well. A little bit different message from equity markets in terms of how they're viewing inflation and and monetary policy as well. So, a little bit of a concern there when you look at oil and interest rates.

[00:08:46]>> You talked about a 5% uh downturn could be a normal but a good buying opportunity uh for the current market.

[00:08:53]What's the one signal that would tell you that this rally is really starting to lose momentum?

[00:09:00]>> Well, I think you got to look at it on a short-term basis and use short-term indicators. So, we use different indicators. momentum indicators starting to roll over and buyers no longer stepping up at at shorter term dips would be a concern. I I think that would be probably the biggest play uh biggest tell. I think what you see in interest rates if we do see the equity markets start responding to higher oil prices maybe a sign that that is weighing on sentiment and that could definitely be a short-term headwind I think for equity markets. So given all of that, what should investors actually be doing here in anticipation of a potential pullback, but also with the expectation that the market could power higher into year end, >> right? I think the big message for investors at home is really to stay invested. I don't want to say ignore the noise what that's going on in the Middle East, but stick to the the trend here, which of course is higher, and I think stick to the fundamental story as well.

[00:10:03]We're moving from this period of of escalation in the Middle East to deescalation. We think that trend will continue. There'll be some volatility of course around that. But I think staying invested using any type of weakness as a buying opportunity and then rotating into the right sector. So we like tech as I mentioned before large cap growth generally works when tech is working.

[00:10:25]And then US equity markets are starting to outperform. And that's been a new trend that has recently developed over the last few weeks. It is very similar to April 2025 when you had big tech leading on the way down into the tariff tantrum and then big tech leading on the way out in a big way. And that's really the playbook that we're seeing in this current environment.

[00:10:47]>> What else outside of tech though?

[00:10:51]>> Well, we like the industrial sector.

[00:10:52]That's another overweight that we've held for quite a while. And the technicals look good there. That actually looks like more of an attractive pullback opportunity right now at the sector level. And then thematically, when you think about aerospace and defense, the defense spending in this environment certainly going up and it's not just in the US.

[00:11:10]You have NATO committing to 5% of GDP spending on defense. We think those trends have plenty of shelf life. And then you have the reshoring theme. So, a lot of companies building more and more products, we'll call it. Back in the US, you have AI data centers. So, they're a big um derivative play in that in terms of the overall construction of those data centers, things like HVAC and and the the building materials that go into it. So, we like that sector as well.

[00:11:37]It's it's demonstrated really good relative strength. And again, we think of it right now as more of a pullback opportunity. I know you can't give actual stock picks, but because you are a technician and you look at the charts, I'm curious, especially after some of the earnings that we've seen, are there any charts that still look very strong for some of the biggest winners that we've been seeing? And are there any that might be flashing warning signals?

[00:12:02]>> So, we've had some really, really impressive runs, especially in the tech sector with names like Intel, AMD still, still rallying. And I think Intel is up over 200% in 30 trading days. Now, normally when you double over that short period, there's going to be some some short-term pain. I think it comes with a territory of a 200% rally. So, no no surprise there if we get some a pullback just technically when you look at how overbought the stock is. One name though that looks really interesting is Nvidia.

[00:12:33]They have earnings next week finally starting to break out. The stock's gotten nowhere for several months and finally starting to clear some important resistance levels. Technically, you can make the case that there's more room to run with Nvidia. It's now demonstrating some actual relative strength and some outperformance. So, I think that's really going to be an interesting one to watch as we go into earnings next week.

[00:12:55]>> Any that the chart or the numbers look good in terms of year-to- date performance, but the chart actually is signaling otherwise. Well, you go to software and that's been the story all year. Some of the the the fundamentals in the software space have really not changed, but the stocks have been completely beaten up with fear over AI disruption. Microsoft looks interesting.

[00:13:18]One of the main hyperscalers as well.

[00:13:19]They're spending a lot and the AI arms race. Technically, you can make the case here. Maybe it looks like a head and shoulders bottom pattern. Not complete yet. still need to to clear the neckline, but certainly an interesting one when you look at the fundamental story there and then you look at the the technicals as well.

[00:13:37]>> Yeah, Microsoft still down about 15% year-to date. All right, I think it's time to transition to our rapid fire game of this or that, Adam. Quick questions, quick answers. Are you ready?

[00:13:48]>> I'm ready.

[00:13:50]>> Here we go. Rally. Built to last or running on fumes?

[00:13:55]>> Built to last. Buy now or wait for a pullback?

[00:14:00]>> Short-term, wait for a pullback here.

[00:14:03]>> Tech leadership or market broadening?

[00:14:06]>> Big tech is back. So, tech leadership all the way.

[00:14:10]>> So, MAG7 or other tech winners?

[00:14:13]>> I'm going to go Meg seven because the broader MG7 space is just breaking out now.

[00:14:20]>> All right. So, mega cap or small caps from here?

[00:14:23]That's a tough one, but I'm going to go mega caps using the playbook from last year.

[00:14:29]>> Narrow leadership or healthy rotation.

[00:14:33]>> Narrow leadership, but eventually a healthy rotation.

[00:14:38]>> Momentum trade or fundamentals driven rally?

[00:14:42]>> I'm going to go, can I go both on that one? Because momentum's working, breaking out, powered by really strong fundamentals.

[00:14:50]Bigger risk. Higher oil or higher rates?

[00:14:54]>> Higher rates.

[00:14:57]>> Buy the winners or rotate into the lagards?

[00:15:02]>> Buy the winners. That's what history has told us.

[00:15:05]>> Cash on the sidelines or fully invested here?

[00:15:08]>> Fully invested. Move the money into the market.

[00:15:13]>> Resolution with Iran. Catalyst to move higher or a sell the news event?

[00:15:20]catalyst to move higher. I think >> one chart investors should watch most closely right now.

[00:15:27]>> Let's go with the most important company in the world and Nvidia with earnings next week.

[00:15:34]>> Nvidia after earnings, higher or lower?

[00:15:37]>> I'm going to go higher with the momentum that we've seen in the stock recently.

[00:15:42]>> One word to describe how you're feeling about the market for the rest of 2026.

[00:15:47]optimistic.

[00:15:49]>> We'll leave it there. Adam, thank you so much. Really appreciate it.

[00:15:53]>> Thanks for having me.

[00:15:55]>> That's Adam Turnquist, chief technical strategist for LPL Financial. If you enjoyed this street talk, be sure to check out our full interview with Mark Xandandy. He explains why despite the latest jobs data, there's still a 40% chance of a recession.