Markets Take A Pause From Post Election Euphoria

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

This past week, stock markets gave back some of the strong post-election gains.

The S&P 500 was down about 2% for the week, although gains for the full year still exceed 23%, and the index is up over 1% since U.S. election day.

Overall, we are now entering a seasonally stronger time of year for markets. Historically, November and December have been positive months, especially in election years, and momentum may resume in the weeks ahead. However, after a strong year in the markets, and an especially strong post-election rally, some of these gains may have already occurred.

Technically, we are seeing signs of deterioration in several indicators. The plurality of advancing vs. declining stocks has narrowed, as have up/down volume numbers. The number of new highs vs. new lows has turned negative. The VIX volatility index ramped up last week, suggesting rising concerns over valuations and speculation, particularly in lower-priced and biotech stocks, potentially signaling a topping process.

Government policy and international uncertainty will continue to impact markets and may spur bouts of volatility.

However, assuming no major external shocks and the potential for pro-growth policies ahead, indices may continue to climb these “walls of worry.” While the pace of this bull market’s gains may moderate, pullbacks could be viewed as opportunities, especially if economic and earnings growth continue to support market expansion—unless, of course, key technical levels are breached.

Technically, the S&P 500 closed near initial support around 5850. Should that level break, I view additional key support near 5780-85 and then 5695-5700. A breach of these levels could extend the pullback, potentially sharply, with lower support around 5665 and 5565 (.50 Fib) off the August low at 5110.