The Market is Flashing a Warning. Could It Also Be Signaling a Rebound?

The stock market is sending some increasingly familiar signals, and they deserve attention.

While the S&P 500 ($SPX) remains relatively close to its highs, the deterioration beneath the surface tells a different story. Only about 20% of S&P 500 stocks are trading above their 20-day moving averages, meaning roughly 80% have fallen below this important measure of short-term momentum. The weakness is also showing up in the equal-weighted S&P 500, which is beginning to mirror the negative pattern we saw in March. This is important, as the equal-weighted index gives each S&P 500 company roughly the same weight, providing a better picture of whether market strength is broadening or narrowing.

Several other pieces of the current backdrop look familiar as well.

A Familiar Setup

In March, rising oil prices and interest rates contributed to growing pressure on equities, while deteriorating breadth signaled that weakness was spreading beyond a handful of large-cap stocks. The S&P 500 ultimately declined nearly 10% from its January peak to its March low.

What happened next is particularly important.

While easing geopolitical tensions sparked the initial relief rebound at the end of March, robust corporate fundamentals provided the heavy lifting, driving the S&P 500 roughly 10% higher in April and back to fresh all-time highs. An exceptionally strong earnings season provided a critical structural cushion, giving investors the confidence to look past sticky inflation and restrictive Federal Reserve policy and continue bidding stocks higher.

The current setup is different.

We are once again seeing pressure from rising oil prices and interest rates, all while market breadth is deteriorating. But the next full earnings season is still about a month away, leaving a relatively long window in which macroeconomic factors can dominate the market.

More immediately, investors face next Wednesday's Federal Reserve decision. With inflation still a concern and Treasury yields elevated, the Fed's policy decision and, perhaps more importantly, its guidance on the path ahead could have an outsized impact on equities.

In other words, the market currently has fewer fundamental catalysts to offset a potentially challenging macro backdrop.

A Potentially Bullish Signal

There is, however, another side to the story.

The Nasdaq-100 Bullish Percent Index is currently around 42. Historically, when this indicator has approached 30, the market has reached deeply oversold conditions that preceded sharp rebounds. That occurred in mid-November 2025, early April 2026, and late July 2026. In each instance, the market subsequently staged a significant recovery.

So while a reading of 42 is not yet at the level that has historically marked those turning points, another decline toward 30 could become an important contrarian signal. And this creates an interesting tension in the market. Breadth is deteriorating, and the broader market is beginning to resemble the setup we saw before March's correction. Yet the same deterioration could eventually create the oversold conditions that lead to the next powerful rebound.

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What I'm Watching

For now, I believe investors should focus less on the headline S&P 500 and more on what is happening beneath the surface. If oil prices and Treasury yields continue to rise while an increasing number of stocks remain below their short-term moving averages, the March comparison will become increasingly relevant.

The equal-weighted S&P 500 will be particularly important. Continued weakness there would suggest that the market's advance is becoming increasingly dependent on a smaller group of large-cap stocks.

At the same time, I'll be watching the Nasdaq-100 Bullish Percent Index. A move toward 30 could signal that selling pressure is becoming sufficiently extreme to create an attractive rebound setup, particularly if interest rates stabilize and market breadth begins to improve.

The Fed's decision next Wednesday could be an important near-term catalyst, while the absence of a broad earnings catalyst for roughly another month leaves the market more exposed to changes in interest rates, inflation, and oil prices. Another March-style correction is certainly not inevitable. However, the similarities are becoming difficult to ignore.

If you’d like to be kept up to date on the condition of the markets, use this link here for a no cost 2-week trial of my twice weekly MEM Edge Report. My Watch List is expanding, and you’ll want to be in front of potential winners once these markets regain a bullish bias!