The S&P 500 index fully recovered after falling in August to as low as 1,835 when fears of a slowdown in China shocked the global markets. The index experienced its first technical correction during the month of August as it fell more than 6% from its all‐time high. This is the biggest fall since September 2011 where the index faced a ‐7.20% drop. Even though the index recovered above the psychological level of 2,000 it went negative on the year‐to‐date (YTD) at 1.85% and in the past one year period is down about 0.60%. For the third quarter, the index finished with a total return of ‐ 6.90%.
However, the main concern is that the index return is coming from a few of its stocks. Among the 10 most valuable stocks in the market which are up roughly 20% as a group this year versus a ‐3% for the rest of the stocks. For example, shares of Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOG) have led the way, while Exxon Mobil (NYSE: XOM) and Berkshire Hathaway (NYSE; BRK) have been underperformed. Thus, we should examine this more closely as a widening of the stocks between the market's best performers and the rest of the market could raise some worries for the whole performance of the index in the near term.
Technically, the index is struggling to extend the bullish rally above the all‐time high of 2,135 following the aggressive buy from the 1,835 in mid‐August. The recent sell‐off in mid‐November saw the key zone of 2,000 – 2,023 once again provide solid support for the index. Therefore, the key zone which will have a significant impact on the direction of the index will be the 2,000 – 2,023 zone. The recent rally above the aforementioned zone has been extremely aggressive and if we see a close above the key 2,135 or the all‐time high, would be a strong bullish signal.
On the other side of the coin, a break below the aforementioned zone could be seen as a double top reversal, which is a bearish reversal pattern, and therefore, we should expect a further pressure on the bottom of the pattern or the neckline, around 1,835 and slightly below the 23.6% Fibonacci retracement level.
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