There are 5 technical signals that hint the record-breaking stock rally is out of steam, Jefferies says

• The stock market's relief rally might have already hit the upper limit, Jefferies said.
• The bank pointed to technical indicators that suggest last week's jump won't extend.
• Markets have whipsawed as traders digest the latest developments in the Iran war.

The relief rally markets have enjoyed in the last week might already be out of steam, according to Jefferies' Michael Toomey.

The managing director of equities trading at Jefferies said he believed the market's recent rebound has likely hit its upper limit. In a note to clients, he pointed to various technical signals that suggested the market is about to "stall" following last week's big rally that took major indexes to all-time highs.

"I think we have captured the rally (and then some) that you would expect to see after the stress signals from the past month. So tactically, I think we will consolidate in the near-term," he said.

Markets have whipsawed as traders continue to digest developments between the US and Iran. Traders embarked on a jubilant rally after Iran announced the Strait of Hormuz was open to commercial traffic on Friday. The update pushed the S&P 500 and the Nasdaq to records.

Days later, the situation is again volatile. The two-week ceasefire is nearly over without a deal between the US and Iran. Over the weekend, Iran said the Strait was again closed, firing on some ships attempting to pass through the waterway.

Here are five of the most prominent signs Toomey is watching that show the latest rally is capped:

1. Call volumes are at a five-year high

Call volumes over the last three trading sessions in the US are hovering around their highest level in five years, according to Jefferies' analysis, reflecting heightened investor bullishness, which could be a contrarian sell signal.

Call options are increasing for the Magnificent Seven in particular, Toomey added, with volumes for the group of tech giants recently rising to the highest level in a year, he said.

2. The S&P 500 and Nasdaq see a sharp move in the RSI

The Relative Strength Index, a momentum gauge that indicates how overbought or oversold an asset is, has increased sharply for the S&P 500 and the Nasdaq 100.

The RSI reading for the S&P 500 rose 46 points over the last 13 days, the largest increase over that time frame in over thirty years, Toomey said. The RSI reading for the Nasdaq has seen a similar increase over that time frame.

"Most violent RSI move ever," Toomey wrote.

3. Nearly a quarter of tech stocks are overbought

Around 23% of companies in the technology, media, and telecom sectors look overbought, with an RSI reading of over 70, according to Jefferies' analysis.

4. The S&P 500 is on a rare winning streak

The S&P 500 gained more than 3% for three straight weeks as of last Friday. Over the last 75 years, that's only happened twice, Toomey said, pointing to when the market recovered from its decline in the early 80s and during the pandemic.

Meanwhile, the Nasdaq Composite on Friday notched its own rare milestone, hitting its longest win streak since 1992.

5. The S&P 500 has outperformed its historical average in April

As of last Friday, the S&P 500 was up 9% since the start of the month. That's above five times the index's historical average, with the index gaining an average 1.7 percentage points for the month over the last 30 years, Toomey said.