Weekly Update S&P 500

This week, the S&P 500 experienced a modest 0.2% gain. As you can see from the chart, the market followed a slow-moving path, showing limited action. Last week’s newsletter mentioned the gray trend line on the one-hour chart, and on Friday, the S&P 500 broke below that line. On Monday and Tuesday, the index failed to rally above it and saw a decline on Tuesday, followed by a mostly flat performance for the rest of the week. However, Friday closed with a stronger movement, leaving the market nearly unchanged from where it started the week.

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Market Cycles to Watch

Despite a relatively quiet week, the S&P 500 has been climbing steadily since the August low, now up 12.9%. If you look at the daily chart, you’ll notice the wedge formation marked by the orange upward-sloping trend lines. This pattern typically leads to a breakout, and we’re still watching for the green support zone, which has yet to be tested. This zone, combined with the trend lines, is expected to provide solid support if the market pulls back. Additionally, take note of the black dashed vertical lines on the chart. These lines, spaced 24 trading days apart, highlight a recurring cycle in the market where lows seem to coincide with these intervals. Based on this pattern, we’re approaching the next vertical line, suggesting a potential low in the coming days. While this isn’t a major decision-making tool, it’s an interesting cycle to watch for market timing. If prices do dip into the green support zone, we anticipate a bounce to the upside. Of course, the market could surprise us by skipping the support zone entirely and pushing higher directly from here. The next week should offer more clarity on how this plays out. 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 October, which is historically a weaker 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.