We have written a few blogs over the years that explain why we look at charts when we analyse financial markets. The recent pullback and then rise in the S&P 500 is one example of why we do this. The chart below shows the daily S&P 500 chart with 20, 60 and 250-day moving averages. The rising channel that defined part of this rally was useful in understanding some of the activity. It was particularly useful when broken, giving confirmation that the index was likely to fall further. How far? The Fibonacci ratios from the October 2023 low to the March 2024 peak gave some potential support areas to watch for, and targets. The flat red line on the chart shows the NVIDIA gap from February 2024. Gaps can be important in chart analysis, and this proved to be the case on this pullback. The combination of the 23.6% retracement and the gap seemed to draw out buyers.
How important is this buying activity? The push to new highs will be triggering all sorts of rethinks from quant and model/swing traders. The chart below shows big red arrows that suggest that gains towards 6,000 could follow in time, based on a simple extension of the October/March rally from the April trough. Watch the 20/60-day moving averages as support again, with the April low key to hold for near and medium-term bulls.
We keep an eye on the long-term charts when we look at markets. The chart below is the monthly S&P 500 price index with a semi-log axis. The semi-log axis is used in order to show percentage gains (and trend) as an arithmetic price axis can distort the picture over the long-term. We have been sticking with a narrow and a broader channel for the S&P for some time now. The top of the channel comes in near 6,000 around year end. Another 13% of gains? See how earnings, valuations and risk appetite pan out over the coming months. Remember, previous approaches to the top of the channel have been bumpy. Interesting times ahead…
Gerry Celaya,
Chief Strategist
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