Weekly Update S&P 500

This week, the S&P 500 closed with a loss of 0.7%. While this may not seem dramatic, it reflects a market grappling with mixed signals. Recent activity shows some underlying resilience but also signs of short-term weakness.

As shown in the four-hour chart, the S&P 500 continues to test key levels. In November, the index established a strong support zone, bouncing up over 5% since then. Last week’s positive momentum came from a green upward-sloping trendline that helped sustain market strength.

However, Monday brought a break below these trendlines, followed by a dip into a new low on Tuesday. On Wednesday, the market rebounded, nearly retesting the broken trendlines before tapering off on Thursday and Friday. The late-week selloff hints at indecision, with no major shifts. Overall, this week showed mild weakness but no alarming shifts in the broader trend.

Our last position, which we placed on November 20, has been active until December 10, when we sold it for a gain of 5.7%
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Can the S&P 500 Hold Support?

As shown on the daily chart, the green support zone from November is the key level where the S&P 500 previously found its bottom and initiated a significant upward move. Last week, we discussed the gray-shaded time horizon as a potential short-term bottoming window. Interestingly, the market’s weakness this week aligns closely with this anticipated timing.

Currently, the S&P 500 is testing the orange trendlines, which define the lower boundary of a rising wedge pattern. This support zone is reinforced by horizontal support levels, creating what we now mark as a new green support zone on the chart. These combined levels are crucial in holding the market steady.

Above the orange trendlines, we see the red trendlines forming the upper boundary of the wedge pattern. Prices have not tested the red trendlines before this pullback, which raises some concerns. The red arrow on the chart highlights this gap, signaling there may be additional market weakness.

Despite this, as long as the orange trendlines remain intact, there is little cause for concern. The compression within the wedge pattern suggests that a decisive move could occur early next year. For now, it seems likely that the S&P 500 will remain supported and may continue its upward trajectory into year-end.

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

S&P 500: An Unusual Year for Seasonality

Historically, the S&P 500 tends to follow seasonal patterns. Typically, markets weaken leading up to the November election, followed by a rally into the end of the year. This year, however, deviated from the norm. There was no significant correction before the election.

Instead, the S&P 500 has shown exceptional strength throughout the year, with gains far outpacing those of previous years. While the seasonal pattern chart suggests a strong rally to close the year, the deviation earlier in the year indicates that the market may not follow this trajectory. This unpredictability highlights the need for caution when looking at historical trends.

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.