What you need to know
- The S&P 500 posted a record closing high on Friday to cap off its best month of the year, as the U.S. stock market extended a post-election rally.
- In the same week that the Index reached its new high, the Relative Strength index also recorded a relatively lower increase, creating a “bearish divergence”, a chart indicator of slowing momentum in buying.
- During pullbacks, investors should watch key support levels on the S&P 500's chart around 5,870 and 5,670.
- An index price of 6,675 is predicted by a calculated move that adds up the width of an ascending wedge at its broadest point to the pattern’s upper trendline.
The S&P 500 (SPX) posted a record closing high on Friday to cap off its best month of the year, as the U.S. stock market extended a post-election rally.
Index gains 5.73% for November. The month ended at 6,032, thanks to optimism about President-elect Donald Trump’s business-friendly policies, and Republican majority in Congress.
Investors are also cautious of tariffs imposed by a Trump-led administration. These could cause inflation to rise and halt the Federal Reserve’s rate reductions.
Below, we break down the technicals on the S&P 500’s chart and identify important levels that investors may be watching out for.
Slowing Momentum of Buying
Since mid-July, the S&P 500 has trended higher within a rising wedge, a chart pattern that appears as an upward-sloping price channel featuring two converging trend lines.
In recent months, the index moved towards the pattern’s upper trendline. However, it is important to note that this strength occurred on lower volumes as we entered the short Thanksgiving Holiday trading week.
Moreover, while the index reached a new record on Friday, relative strength (RSI), a chart indicator of slowing purchasing momentum, made a lower high.
Let’s identify key support levels on the S&P 500’s chart to watch during pullbacks and also use technical analysis to forecast a measured move bullish target to monitor if the index continues trending higher.
The Key Support Levels To Watch
During an initial retracement investors need to keep their eye on 5,870. This level is just slightly above the moving 50-day average. Support for this area is found in the peak of October, the trough mid-November and the trendline lower part of the rising wedge.
A close below this important technical level could see the index decline to around 5,670, a region where the S&P 500 may encounter support near a multi-month trendline that connects a range similar levels on the chart between July and October.
A Measured Approach to Bullish Target
Investors can forecast a bullish chart target by using a measure move, or the “measuring principle”.
This method involves calculating the height of the rising wedge at its broadest point, and then adding this amount to the pattern’s upper trendline. We can add 600 to 6,075 and get a target price of 6,675. This is about 11% higher than Friday’s closing.
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