Wilting Bullish Momentum Foreshadows Possible Pullback

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S&P 500 WEEKLY PERSPECTIVE: A LITTLE BASIST

  • The recent build-up in the S&P 500 has been driven by the stocks with the largest weight in the index
  • Deteriorating scope and limited high-level participation show low confidence in the wider market
  • Failure attempts by the S&P 500 to break above the 4,700 level may be a sign that buying momentum is declining and a pullback may be around the corner.

Most read: How to Explore Stocks: A Step-by-Step Guide

The S&P 500 was on an impressive bullish run lately, climbing 10% from last month ‘s low new perpetual highs, supported by strong ones third quarter corporate gain, constructive profit guidance and positive feeling. The gains, however, have was not widespreadamong the reference members as the secular mega-caps with the greatest weight (Microsoft, Apple, Amazon, Alphabet and Tesla to name a few) were the main drivers behind the explosive rally.

From a technical point of view, a weakening scope and limited high-level participation point to a delicate investment confidence in the wider market and thus unhealthy fundamentals. If a stock index depends only on a few names to move higher, it does not fire on all cylinders, so there must be a weakness behind the scenes. To analyze current dynamics, we can look at the relationship between the S&P 500 tie and the capitalization-weighted S&P 500, using the RSP ETF as a marketable proxy for former and the SPY ETF for the latter.

The diagram below has two panels. The upper shows SPY by itself, while the lower screens the RSP/SPY ratio. After examining price action the la past two months, we can see that SPY has been steadily rising since then early October, during the RSP/SPY ratio declined, falling on Friday to its lowest level since February. This behavior suggests that buying interest is concentrated in the great and most influential stocks, with money inflating disproportionately the heavyweight hitters rather than the smaller and average companies that are part of the benchmark (if the smaller companies were to drive the rally, the RSP / SPY would slope upwards).

SPY AND RSP / SPY RAPIO CHARTER

Technical Forecast of S&P 500: Fading Bullish Moment Predicts Possible Withdrawal

Source: TradingView

When ascending participation is not extensive, anymeetingstands on a shaky foot, so markets can bemore vulnerable al a withdrawal should the winds move and change of feeling. Therefore, traders should become less complacent and start more cautiously, especially during the United States Thanksgiving holiday week because thinner liquidity can strengthen market moves don’t wait.

S&P 500 TECHNICAL ANALYSIS

Focusing on the S&P 500 index, the technical bias remains positive over the medium term, but soon, the ongoing rally seems to be losing momentum as the RSI indicator flirts with overbought territory and price. struggles break above the psychological 4,700 level decisively.

As for price action, failure al clear the 4,700 area after many attempts in the last days suggests that buying interest is fading, awarning that failure may be in sight. If withdrawal indeed is realized, The index could head for the 4,630support zone before staging a bounce, although a move below that floor could accelerate the decline and expose the 4,580 area.

On the other hand, is the S&P 500 defies expectations and succeeds pass the 4,700-bar in resolving modein the next week, bullish sentiment could strengthen, allowing the index to charge higher to channel resistance near 4,760.

S&P 500 TECHNICAL CHARTO

Technical Forecast of S&P 500: Fading Bullish Moment Predicts Possible Withdrawal

S&P 500 (SPX) TradingView Chart

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— Written by Diego Colman, Contributor



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