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The S&P 500 closed last week at 3508, it was the seventh straight day of gains for the index. For the week, it ended up with a gain of 3.3%.

This is its fifth straight winning week, which is its longest weekly winning streak since last December.

The S&P 500, or simply “the S&P”, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most followed equity indices and helps you answer the question “How is the U.S. stock market doing?”

Outside the U.S., traders can trade contracts for difference (CFD) on the S&P 500, along with other major global indices. They’re called “stock index CFDs”.

It’s been a great August, up 6.6% so far for the index, the best August since 1986…the year when the Nintendo Entertainment System (NES) was released!

S&P 500

Including August, the S&P 500 has been rallying for the past five months:

  • April: up 12.7%
  • May: up 4.5%
  • June: up 1.8%
  • July: up 5.5%
  • August: up 6.6% (for now)

S&P500 in Bull Market

Fundamental Picture

Almost all companies in the S&P 500 have now reported earnings. Although earnings were for the most part, horrible due to the virus, given the already low expectations headed into the earnings season by the market, the index didn’t seem to care. The virus spread will continue as the main driver of company performance and profitability for most companies.

Markets seem unaffected by increasing tensions between the U.S. and China, even after military drills by China in the South China Sea. It will interesting to see how long the market ignores this risk. (TikTokers certainly aren’t.)

Last Thursday, the Fed (virtually) held off their annual Jackson Hole meeting with a significant monetary policy shift that had a strong dovish tone.

The new strategy puts more weight on supporting the labor market and less on worries about inflation becoming too high.

It incorporates a loose form of “average inflation targeting”, where the Fed aims to make up for periods when inflation is too low by allowing inflation to run higher and “overshoot” (for a period of time) their 2% goal. Over time though, inflation would still average 2%.

Based on their most recent statement, it now seems that interest rates will be near zero through 2021 and the Fed will continue to support the financial markets and economy.

Regarding the coronavirus, the world has surpassed 25 million confirmed cases.

In the U.S, there are now 6 million cases and almost 183,000 deaths. This keeps the U.S. at the top of the global chart, accounting for almost a quarter of the 25 million cases.

Daily death counts in August more than doubled the average for early July.

The outbreak does seem to be slowing though. It took 16 days to go from 4 million to 5 million cases, but it took 22 days to go from 5 million to 6 million.

Over the past week, there has been an average of 41,924 cases per day, a decrease of 4% from the average two weeks earlier.

COVID-19 Cases

The 7-day-average of the percentage of positive cases in the United States hit its lowest level since June, at 5.8%.

The coronavirus continues to hurt the labor market as initial jobless claims in the U.S. have averaged just over 1 million in the last month.

Regarding the upcoming U.S. presidential election on November. 3, we are starting to see the initial signs of election-based volatility.

After the Labor Day holiday (September 7), I expect the financial markets to become significantly more volatile as the election nears and polls continue to flip in both directions.

So from a high level, the fundamental picture has improved significantly over the past couple of months, but I still see many headwinds that can worsen the volatility in the equity (and FX) market.

While the percentage of positive COVID-19 cases is, fortunately, falling, as the season in the U.S. changes from summer to fall, the colder weather will mean the start of the “flu season” as well as more people staying indoors.

Medical experts are bracing for what some have called a “twindemic” of COVID-19 and the flu.

Until an effective vaccine(s) is available widely, social distancing measures and face coverings remain the primary ways to minimize the spread of the virus.

Now that students are returning to school, surges within the U.S. and around the world might become more difficult to suppress.

The risk of new COVID-19 surges, the twindemic, and vaccine development will remain the focus of the financial markets.

Technical Picture

There is an ascending channel starting from March. This channel held, forming a “higher low” at 3355 (1) and the price is now rising back up to the middle of the channel.

S&P500 w/ Bollinger Band

That said, the price is now trading above the upper band (2) of the Bollinger Band. 

It’s also considered overbought (3) with RSI showing a reading near 80.

As mentioned earlier, the index has been in a strong uptrend for months.

Can it continue to go up with no pullbacks? Maybe.

The U.S. stock market has ignored most of the bad news so far so it wouldn’t shock me if the index continued to roll higher. But given the technical picture, I’d be careful.

Let’s see if the price can stay above 3500 this week. I look for the middle of the ascending channel to be near-term resistance, with the next major resistance level being 3600.

You’d have to be very brave to short right now though given the strong uptrend its been in.

A breakdown (downside breakout) below the channel and the 3400 handle would be a better place to enter short. From there, I’d look for price to fall and catch support at its 50 SMA (purple line) around the 3260 handle.

If the bottom of the channel and the 3400 handle can hold though, I’d look to go long and continue to ride the uptrend.

S&P 500 Holds

For now, I stay on the sidelines.

Pippo Wearning Face Mask

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.