S&P 500 recovery rally hits a wall as the Iran war escalates and a critical data week begins. These are the key levels to watch

The S&P 500 is opening the week at a crossroads. Last week’s 3.4% rally, the index’s largest weekly gain in four months and its first positive week in six, was fuelled by hopes that the Iran war was nearing an end after reports that Tehran was open to negotiations. But over the weekend, the situation escalated sharply, and the optimism that drove last week’s bounce is now being tested in real time.

Here’s what traders need to know heading into the week:

• Trump’s Tuesday ultimatum: the president has set an 8pm ET Tuesday deadline for Iran to reopen the Strait of Hormuz, threatening to strike power plants, bridges, and energy infrastructure if the deadline is missed. Iran has rejected the demand outright
• The Strait of Hormuz remains effectively closed for a sixth consecutive week, with maritime traffic still down more than 90% from normal levels and roughly one-fifth of global daily oil supply disrupted
• Brent crude remains above $110, with gasoline crossing $4.11 per gallon nationally, up from $2.98 before the war
• Friday’s March CPI is expected to show the largest single-month jump in consumer prices since the 2022 energy crisis, with headline CPI forecast to jump above 3% year-over-year, up from February’s 2.4%
• FOMC minutes on Wednesday will reveal how the Fed discussed the oil shock and its inflation implications at the March 18 meeting
• Core PCE on Thursday is expected to return to a 3% handle, a symbolically significant level for the Fed’s preferred inflation gauge

The rally that carried the S&P 500 higher last week was built on two things: hope for a diplomatic resolution and a surprisingly strong jobs report on Friday. Both are now under pressure. The diplomatic picture has deteriorated, and the strong labour market could actually complicate things if it emboldens the Fed to hold rates steady while inflation accelerates. As one strategist put it last week, the market is not out of the woods just because it bounced.

For a broader look at how the Iran conflict has been shaping equity markets, see our previous S&P 500 analysis.

4-hour chart

The S&P 500 4-hour chart shows a breakout from the descending channel and reclaim of the 6,500 support, but the rally is stalling at 6,600 resistance with the Accumulation/Distribution indicator diverging from price.

The 4-hour chart shows early signs of a potential trend reversal, but the setup is far from confirmed. Price has broken out of a descending channel that had contained the selloff since mid-February and has reclaimed the 6,500 support level, a key structural floor. The 20 and 50 EMAs have also been reclaimed, which is typically the first sign that short-term momentum is shifting.

However, the rally is now running into trouble at the 6,600 resistance area, and the evidence from the indicators suggests caution. The RSI has crossed back above 50, which is constructive, but the Accumulation/Distribution indicator is failing to make new highs alongside price. That divergence is a warning sign. It suggests that while price is pushing higher, the volume behind the move is not convincing. Buyers are present, but they are not committed.

Until the 6,600 area is reclaimed with conviction, it acts as resistance. A clean breakout above this level could open the door towards the 6,750 resistance zone, which also lines up with the higher-timeframe range equilibrium, a level that has acted as a pivot throughout the broader consolidation. Reclaiming 6,750 would be the first meaningful signal that the recovery has legs beyond a short-term bounce.

On the downside, if the rally fails here and price loses the 6,500 support, the breakout from the descending channel would be invalidated, and a move back towards the 6,365 area, the recent swing low, could become the next logical target.

Key levels to watch:

• ~6,600 — local resistance; the level that needs to break for the recovery to extend
• ~6,750 — higher-timeframe range equilibrium and the next major resistance target above 6,600
• ~7,000 — upper range resistance and the level that would confirm a full trend reversal
• ~6,365 — the recent swing low and the next downside target if 6,500 breaks

The bottom line: the short-term structure is improving, but the macro backdrop could not be more hostile. A breakout above 6,600 would be a technical positive, but with Trump’s Iran ultimatum expiring Tuesday, FOMC minutes Wednesday, Core PCE Thursday, and the hottest CPI print in years due Friday, the path of least resistance could shift on any single headline. The Accumulation/Distribution divergence adds another reason to treat this rally as guilty until proven innocent.

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