This week, the S&P 500 had a gain of 1.05%. There was a short dip on Monday followed by gains on Wednesday. Another dip occurred on Friday, but the index quickly recovered, driven by the unemployment data. In the 1-hour chart of the last two weeks, you can see the S&P 500 was in a downtrend (green on the chart) and managed to break out of it early this week. Subsequently, it established a new uptrend (grey). The market’s resilience suggests a bullish sentiment despite the mid-week volatility.
Our last position which we placed has been active since April 25th. The position is currently up by 16,0%.
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Since the April low, the S&P 500 is up 8.4%. The index has recovered all the losses from the short correction two weeks ago. The situation is now a bit unclear, as the move since the April low is quite extended. On the other hand, we just experienced a small correction, so further upside can be expected. To address this, we can make use of the support zone (green on the chart). This support zone consists of two trendlines (orange and red on the chart) that converge with an old high from the end of May. During the dip on Friday, the S&P 500 already tested this support zone slightly and bounced nicely from it. If the index comes down into the zone again and holds support, it presents a good buying opportunity. We will inform our subscribers if that happens. However, if the support zone is broken to the downside, further weakness can be expected. As always, proper risk management is crucial. Monitoring these key levels will be essential for making informed trading decisions. Follow us for updates and guidance on navigating these market conditions.
The next few months
The seasonality for the S&P 500 in an election year anticipates weakness in May and then strongly rising prices until early September. This is usually followed by a bigger correction until the election in early November. It is possible that the correction in May occurred a month earlier this year, and we are now moving up until September. Of course, the seasonality data should be approached with caution, especially this year because we have already seen a significant rise in prices.
The macroeconomic environment is showing negative signs, with our Risk Level Indicator (RLI) increasingly confirming this outlook through various signals. The risk of a credit event remains elevated, adding to the prevailing economic concerns. Of particular note is the Federal Reserve’s Bank Term Funding Program (BTFP), which was initiated in response to last year’s banking crisis to aid banks struggling with high interest rates. However, this program has now expired, and banks are required to gradually repay the loans to the Fed over the course of a year. The RLI will promptly identify emerging issues and adjust the risk level accordingly, providing valuable insights for investors. Currently, a somewhat defensive allocation in stocks is advisable, given the uncertain economic climate.
The world of finance is complex and includes many technical terms. For explanations of these terms, I recommend using the Investopedia dictionary.
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