Dear traders, dear stock market friends.
Thanksgiving was celebrated in the USA last week. Instead of stock market prices, the traditional consumption of the Thanksgiving turkey was therefore probably the focus of attention for many investors. The markets were somewhat calmer, but the positive mood continued and the major US share indices recorded moderate gains.
Thanksgiving week is historically a very strong week for the US equity markets. The probability of a rise in the S&P 500 is around 70 %. In years with a presidential election, the index rises as much as 75 % of the time. In the past trading week, the S&P 500 rose to a new all-time high and achieved a gain of 1.1 %, while the Nasdaq 100, the Dow Jones and the Russell 2000 also performed well.
Since the beginning of the year, the S&P 500 is already up 26.5 %, ahead of the Dow Jones (+19.2 %), the Russell 2000 (+21.6 %) and the Nasdaq 100 (+24.4 %). This raises the question: how much further can the market rise and is it possibly already a little overstretched?
No end to the trend in sight
The fundamental conditions as well as the signals from technical analysis and intermarket analysis currently clearly favor the continuation of the bull market and there are hardly any indications of a trend reversal. However, a short-term correction or consolidation that lasts a few weeks and could result in a fall of a few percentage points should always be taken into account. But there are currently no signs of this either (yet). The trend and intermarket signals continue to signal strength. A short-term correction is also often heralded by at least a brief weakening of the market breadth. If you regularly analyze the following market breadth indicators, this will give you a good picture of the internal constitution of the market and corrections or trend reversals can often be identified at an early stage.
S&P 500 Equal Weighted Index
The S&P 500 Index is weighted according to the market capitalization of the individual companies. This means that a small number of companies with a very high market capitalization are largely responsible for the performance of the index as a whole. For this reason, it makes sense to also look at the S&P 500 Equal Weighted Index. Here, all companies are equally weighted and the index is therefore not so heavily dependent on the performance of individual companies.
The S&P 500 Equal Weighted Index has risen 18.5 % since the beginning of the year. Although this is slightly less than the S&P 500, the performance is still very positive and the equal-weighted index even showed relative strength at times, particularly in the second half of the year. In recent weeks, the Equal Weighted Index has also generated numerous new all-time highs and has performed roughly in line with the S&P 500. You can see this with the help of the relationship line between the S&P 500 Equal Weighted Index and the S&P 500, which is shown below the price in the following chart.
S&P 500 Equal Weighted Index with Relation Line (SPXEW:SPX)
Advance Decline Line with new high
The Advance Decline Line is also in a clear uptrend and reached a new high last week. This is another bullish signal. If the AD Line develops relative weakness or a bearish divergence in the coming weeks, this could be interpreted as a warning signal for a possible correction.
NYSE Advance Decline Line
New Highs vs New Lows
A look at the number of shares with new 52-week highs compared with the number of shares with new 52-week lows on the New York Stock Exchange also shows that the broad market is participating in the upward trend. Significantly more shares are reaching new highs.
NYSE New Highs vs New Lows
Year-end rally, and then?
The S&P 500 has had a seasonal tailwind since the beginning of October. The seasonally strong phase will continue until the end of December or the beginning of January. The year-end rally is therefore already in full swing. Should the market correct again briefly, this would provide an opportunity for a further short-term bullish entry.
Seasonal trends of the S&P 500 over different time periods
As the year slowly draws to a close, it is worth taking a look at the seasonal trend from January to March. Here we see one of the seasonally weakest phases of the year, followed by a seasonally favorable entry point in March.
As the S&P 500 rises on average, it makes sense to remove the long-term trend from the seasonal chart when analyzing seasonality. This method is known as detrending. The following chart shows the detrended seasonal chart of the S&P 500. The seasonal downward movements in the first quarter are clearly visible here.
Seasonal trends of the S&P 500 over different time periods (Detrended)
Author: Tobias Schmid
Date: 02.12.2024
