S&P 500 (SPX) Bounce from Top of Trump Gap Leads to Test II of 6k

S&P 500 Talking Points:

• Last week was a grinding week for the S&P 500 after the late-week sell-off from the week before. But – bulls were able to hold support at the top of the election gap in SPX and that’s led to a boost up to and test of 6k to start this week.
• Given election dynamics there’s still quite a bit of gap remaining below current prices in SPX, and with this week’s opening gapping above last Friday’s close, there’s a shorter-term spot that bulls can defend if they remain aggressive.
• To get my bigger picture outlook on equities, check out the Q4 Forecasts, which you can access from the link below:

The post-election run across markets was fast and heavy, with rallies in all of US equities, the US Dollar, and Bitcoin to go along with higher US Treasury rates, particularly of the long-term variety.

As I said in the aftermath of election results coming in, it was unlikely for all of those markets to remain on moves in that direction, and it was my expectation that Bitcoin would be the big winner, and stocks would continue to run-higher as the US Dollar found some element of resistance.

Well, the USD is finally turning after a fresh test of a two-year-high last week and US rates are starting to pull back, as well. Bitcoin has made a fast move on the psychological 100k level with that price trading in Bitcoin futures last Friday. Stocks, however, are what today’s article is about and, in the S&P 500 it’s been an interesting couple of weeks.

Going back to two weeks ago, a pullback started to show in the S&P 500 and that led to forceful moves on Thursday and Friday. And then last week, sellers had an open door to continue the move but were constantly stifled at a big spot on the chart. That spot is the top of the gap produced by the election results, as the Tuesday close on election day was down at 5,782 and the Wednesday open after Trump was declared the winner was at 5,864.

The rest of that week saw strength continue for the index to put in its first ever test of the 6k psychological level, and that’s where buyers started to get run over by sellers.

The pullback from that failed test at 6k pushed right back to the top of the election gap, and the 5,864 level traded for four consecutive days including the first three days of last week.

S&P 500 (SPX) Daily Price Chart

S&P 500: Mind the Gaps

There are actually two separate gaps in the S&P 500 from a longer-term basis and I think that both remain notable. The election gap, of course, is obvious and I’ve got that colored in blue below.

But even before that there was a downside gap in late-October that was never filled – and when price shot-higher after the election, there was limited price action in SPX at that zone. This runs from the Wednesday October 30^th low of 5813 and runs 5775. Given the pre-election close of 5782, the bottom 7 points of that gap have been filled, so the remaining gap from that episode now runs from 5813 down to 5782. I’ve colored that gap in purple on the below chart, going along with the larger blue gap from the election move.

After this week’s open and the fresh test of 6k, there’s now another gap to work with, taken from last Friday’s close down to 5,969 and if bulls remain aggressive, that becomes a spot of support that they can hold to illustrate that optimism. If support shows there, similar to what took place last week atop the bigger picture election gap, buyers are exhibiting an element of control that could allow for a subsequent re-test of the 6k psychological level.

S&P 500 Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist