The S&P 500 has been explosive during the month of November, taking off and breaking out of a massive bullish flag pattern. Quite frankly, the market is likely to continue to see a lot of volatility, and as I write this article, we are very close to a major resistance barrier in the form of 4600 and are starting to pull back just a bit.
This would make a certain amount of sense, as we have rallied so quickly in such a short amount of time. Because of this, I think you get a situation where a pullback offers value, and of course we have to ask questions as to whether or not the “Santa Claus rally” has already happened, or if there is more out there? A lot of this will come down to the 10 year yield in the United States, which has been dropping, thereby propelling stock markets higher.
Caution Amidst Year-End Trading Dynamics
Underneath, we have the 50-Week EMA offering a significant amount of support near the 4400 level, backed up by the 200-Week EMA. With this being the case, the market is likely to continue to see a lot of support in that general vicinity. If we were to break down below there, it would be an extraordinarily negative turn of events. Conversely, if we were to turn around and take out the 4600 level on a daily close, that probably brings in a significant amount of “FOMO trading”, opening up the possibility of a move to the 4800 level. We have seen a significant amount of noisy behavior, and therefore I think we continue to do so. Beyond that, you need to keep in mind that the end of the year typically is somewhat thin trading, especially as most traders will be focusing on the holidays more than anything else. This happens time and time again, and therefore you need to keep an eye on volume at the same time.
We are presently in the midst of forming a bit of a “double top” on the weekly chart, and therefore a lot of technical traders will be looking for a pullback. I think that makes a certain amount of sense, but keep an eye on the 4400 level to determine whether or not it is a simple pullback, or if it’s something a little more often is.
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