Weekly Update S&P 500

Welcome to our weekly newsletter on the S&P 500! This week, the S&P 500 recorded a modest gain of 0.5%, climbing steadily each day. While the upward movement was gradual, it was consistent. If you look at the one-hour chart, you’ll see the price forming a clear upward-sloping trendline (grey on the chart). The price repeatedly touched this line and moved higher throughout the week. At the same time, the orange trendlines on the upside contained the price, creating a tightening range, which you can see clearly on the daily chart. As the week progressed, these converging lines compressed the price action. By Friday, the S&P 500 struggled to hold above the grey trendline, closing the week just below it.

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Possible Pullback on Horizon

Since its August low, the S&P 500 has surged 12.7%. On the daily chart, you can observe a strong move upward since that low, with a clear breakout marked on the chart. However, what stands out now is the rising wedge pattern forming, outlined by orange trendlines. This wedge is a common formation in financial markets, where prices gradually compress before breaking out, often to the downside. Currently, the S&P 500 is at the upper edge of this wedge, suggesting limited room for further upward movement. It seems likely that the price could soon pull back towards the green support zone, which aligns with the lower trendline of the wedge. This area is also a previous breakout level, making it a potential spot for a bounce. Of course, markets are unpredictable, and prices could either continue climbing or break below the support zone entirely. If the rising wedge breaks down, it could lead to a lower low, potentially revisiting the August bottom. This scenario aligns with typical election-year seasonality patterns, where prices tend to weaken leading up to November. For subscribers it is very important to follow our risk management measures that we provide with all our services to protect against losses in case support zones break

The next few months

The chart shows the typical seasonality for the S&P 500 during an election year, indicating patterns of market behavior around key months. Historically, we see a tendency for market weakness in May, June, and July, followed by a period of strong price gains up to early September. However, this is usually succeeded by a larger correction leading up to the election at the beginning of November. The period from mid-June to the end of July is characterized by some market softness, with only modest upward movement, which aligns with the recent declines we’ve witnessed. As we move into September, which is historically the weakest month of the year, we may continue to see this pattern of volatility. Given the historical data, there could be further weakness until the U.S. election on November 5th. However, it’s important to interpret this seasonality with caution, especially this year, as we have already experienced a significant rise in prices. Investors should consider both seasonality trends and our analysis for a balanced view. Proper risk management is essential in navigating these market conditions.

Our Market Dashboard provides a quick overview of the current market conditions and, more importantly, the associated risk. You can view a chart of one of our tools, the Risk Level Indicator, showing predicted risk from 1998 to 2024. If you are interested, you can visit our Dashboard site here.

The world of finance is complex and includes many technical terms. For explanations of these terms, I recommend using the Investopedia dictionary.