Weekly Update S&P 500

Weekly Summary

Welcome to our weekly newsletter on the S&P 500! This week, the index gained 1.6%, stabilizing after the previous week’s losses.

Monday was uneventful, but Tuesday saw a sharp selloff followed by a swift recovery. Wednesday featured a back-and-forth movement, while Thursday and Friday delivered steady gains to close out the week.

On the charts, two upward-sloping green trend lines have emerged, signaling a potential uptrend. However, these trend lines need to hold in the coming sessions to confirm the index’s recovery. If they break, there’s a risk of deeper declines.

Our last position, placed on November 20, is currently up by 2.5%.
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Is This a True Rebound?

Looking at the daily chart, the S&P 500 entered the green support zone we identified last week, trading near it for several days before bouncing back. This movement aligns with the existing orange trend lines, which continue to provide support. The dashed orange lines, although discussed last week, remain secondary as the primary trend lines still hold.

However, the upward move lacks conviction. The daily candles are not as strong as past rebounds, and the sluggish recovery suggests this might only be a corrective move in a larger downward trend. Historically, when the index has touched these orange trend lines, strong rebounds have followed, as seen in the red-arrow-marked movements on the chart.

This week’s slower recovery raises concerns about potential downside risk. If the orange trend lines break next week, a deeper 5-10% correction could be on the horizon, similar to what occurred in July and August.

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.