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Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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S&P 500 holds key technical support but market technicals may be worsening
Equities 3 minutes to read
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Key trading levels and signals to watch in US indices
Summary: S&P 500 entered November with a mild correction based it seems on the twin threats of the longest US government shutdown in history and AI bubble fears. Valuations don't cause bear markets, recessions do, so the duration of the government shutdown was starting to unnerve Wall Street as much as OpenAI suggesting the same government could backstop its funding. I looked at the govt shutdown on Friday and covered some of the market moves in today's quick take.
The S&P 500 gapped to all-time highs in late October but entered November – usually the strongest month of the year – with a modest 4% correction.
Friday’s session saw the bulls mount a stern defence of the 50-day simple moving average (SMA) and held the trendline drawn off the lows since the early May gap up kickstarted a ~20% rally for the broad market.
SPX rallied 100pts off its lows while the Nasdaq composite had been 2.1% lower at one point but rallied nearly 500pts off its low of the day, still posting its worst week since April. We've now had two big wobbles in the last month - so far the bullish trendline and 50-days are holding but it's confidence-sapping and we could be looking at a deterioration in market technicals.
On the bearish side it has closed below the first support level of 6,750, the 38.2% Fibonacci retracement of the of the rally post October 10th to the all-time high, albeit so far this is not a major breakdown in the technicals - Friday’s move was technically satisfying as the 50-SMA held firm, though the intraday rally failed to recapture the 20-day SMA. Gains on Monday look to confirm the 20-day recovery (see US500 chart 2 below).
Looking at the cash market (chart 1 below)The next support level to watch is the 6,500 to 6,550 area, which has been tested and held several times, notably on October 10th where it chimed with the 50-day SMA at the time. The 6,430 area is next in line as the 23.6% Fibonacci retracement of the rally off the April lows, matching the July swing high. Then 6,125, the Feb peaks, is the 38.2% level.
Chart 1: Big Fib levels to watch
The S&P 500 gapped to all-time highs in late October but entered November – usually the strongest month of the year – with a modest 4% correction.
Friday’s session saw the bulls mount a stern defence of the 50-day simple moving average (SMA) and held the trendline drawn off the lows since the early May gap up kickstarted a ~20% rally for the broad market.
SPX rallied 100pts off its lows while the Nasdaq composite had been 2.1% lower at one point but rallied nearly 500pts off its low of the day, still posting its worst week since April. We've now had two big wobbles in the last month - so far the bullish trendline and 50-days are holding but it's confidence-sapping and we could be looking at a deterioration in market technicals.
On the bearish side it has closed below the first support level of 6,750, the 38.2% Fibonacci retracement of the of the rally post October 10th to the all-time high, albeit so far this is not a major breakdown in the technicals - Friday’s move was technically satisfying as the 50-SMA held firm, though the intraday rally failed to recapture the 20-day SMA. Gains on Monday look to confirm the 20-day recovery (see US500 chart 2 below).
Looking at the cash market (chart 1 below)The next support level to watch is the 6,500 to 6,550 area, which has been tested and held several times, notably on October 10th where it chimed with the 50-day SMA at the time. The 6,430 area is next in line as the 23.6% Fibonacci retracement of the rally off the April lows, matching the July swing high. Then 6,125, the Feb peaks, is the 38.2% level.
Chart 1: Big Fib levels to watch
Looking at our US500 chart 2, the MACD has been shouting divergence since May even we made new all-times in the price. The 14-day RSI has echoed this since early October, suggesting momentum is breaking down.
Chart 2: US500 momentum indicators are trying to say something.
Chart 2: US500 momentum indicators are trying to say something.
Market internals have been weak for a fortnight. Market breadth has been very poor since the end of October. Tuesday saw the fewest number of advancing stocks on an ‘up’ day for the S&P 500 since 1990, according to Deutsche Bank’s Jim Reid. New NYSE lows hit 100 on one day last week. John had a good chart highlighting AI concentration in his podcast last week.
Implied volatility has not spiked but we could start to see this move. The Vix closed above its 200-day SMA on Thursday but failed to repeat the trick on Friday, and looks to be slipping further below 19 as of Monday as government reopening hopes is fuelling a bid for risk.
Earnings are very strong as we enter the end of Q3 reporting season - with 90% of S&P 500 companies having reported, 82% have beaten EPS expectations. Aggregate year-over-year earnings growth is near 12%. Nvidia reports on November 19th, which is going to be a major risk event for the broad market – not just its almost 8% weighting in the index but as the bellwether for the entire AI trade that has powered stocks higher this year.
Chart 3: US500, 4hr, showing retracement levels of the rally post October 10th.
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