The S&P 500 recently marked a record closing high and finished November with a 5.73% gain, its best monthly performance of 2024. This surge capped off an ongoing post-election rally, fueled by optimism around President-elect Donald Trump’s pro-business policies and a GOP-majority Congress potentially driving economic growth. However, as the index sets new highs, some cautionary signals are emerging. Let’s break down the current technicals and the critical levels that investors should be watching.
Slowing Buying Momentum: A Potential Warning Sign
While the S&P 500 is in the midst of an impressive rally, there are signs of slowing buying momentum. Since mid-July, the index has been trending higher within a rising wedge chart pattern, which typically features two converging trendlines. Recently, however, the index has approached the pattern’s upper trendline on declining trading volumes—an indication that the buying strength may be losing steam.
Furthermore, while the index achieved a record high on Friday, the Relative Strength Index (RSI), a momentum indicator, made a comparatively lower high, signaling a bearish divergence. This divergence suggests that although prices are rising, the pace of the buying momentum is weakening, which could indicate that a pullback is in the near future.
Key Support Levels to Watch for Potential Pullbacks
In the event of a pullback, investors should keep a close eye on the following key support levels:
5,870: This level lies just above the 50-day moving average, which often serves as a dynamic support area. It also aligns with the October peak, the mid-November trough, and the lower trendline of the rising wedge. If the S&P 500 finds support here, it could resume its upward trajectory.
5,670: A more significant support zone can be found at 5,670, where the index may encounter support from a multi-month trendline that connects a range of levels between July and October. A break below 5,870 and a close near 5,670 would suggest a deeper pullback, potentially indicating a shift in trend.
Bullish Target: Measuring the Potential Upside
Despite the warning signs of slowing momentum, the S&P 500 may still have room to run if the bullish trend continues. Using the measured move technique—a chart analysis method where the depth of a rising wedge is added to the upper trendline—investors can estimate a bullish price target.
From the widest point of the rising wedge, the depth is roughly 600 points.
Adding this to the current upper trendline level of 6,075 gives a target of 6,675, which represents an 11% increase from the current record high.
This potential target suggests that the S&P 500 may reach further highs before encountering significant resistance. However, investors should remain cautious, as the index may face overbought conditions if it moves too far above this level, especially if other technical indicators begin flashing warning signals.
Conclusion: A Critical Moment for the S&P 500
While the S&P 500 is riding high after setting a record close and its best month of the year, technical indicators point to possible slowing momentum. Investors should monitor key support levels at 5,870 and 5,670 for signs of a pullback. On the bullish side, the index’s measured move target of 6,675 provides an optimistic outlook. However, with signs of overbought conditions and diverging momentum, it’s important to stay vigilant as the market navigates these critical levels.
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