The post-election rally continues, and continues to surprise, but should it?
Historically, markets tend to rally after the results of an election, even if it didn’t go as the pollsters say. This is because the uncertainty is out of the way and the market can then focus on the shifts of valuation within the market under the new administration.
So far, that valuation has been bullish as we’ve seen the S&P 500 draw a three percent rally with reduced volatility. Now, the S&P 500 is approaching the 2,200 level.
Historically, round numbers are natural resistance and support levels for indices. The more the zeros the heavier the resistance or support. In this case, the S&P 500 hits this round number with its RSI starting to breach into overbought signals. This, combined with the round-number may help to bring the index lower soon, but long-term the market has bullish tendencies.
Of course, there’s this…
Historically, the S&P 500 performs well during the Thanksgiving Holiday shortened week. The chart below displays the disparity between the performance of this week against that average weekly performance for the S&P 500 on any week of the year since 1990.
Source: Johnson Research Group, johnsonresearchgroup.com
So, back to the chart, the rally we’ve seen mirrors that which happened in July, 2016 (circled) and is likely to follow the same course as we should expect a consolidation after this week that will lead to a buying opportunity.
Short-term “traders” are likely to embrace the breach of 2,200 as a new high, but should expect to be able to trade shares cheaper in the next two weeks. This is due to a higher likelihood that the market will see some consolidation after its recent rally. From there, we expect seasonality and “Santa Clause” to do the rest of the work to have the S&P 500 shares closing out the year on a strong note.
An investor cannot invest directly in an index. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.