Monday was a good session for the S&P 500 as it added 1% and pushed up against 4,200 resistance.
The index has been flirting with this key level since April and up to this point, it has been unable to hold above it for any length of time. Monday was no exception with a midday push to 4,209 slipping back to 4,197 by the close.
Should we be worried about the market’s inability to close the deal and put 4,200 in the rearview mirror?
Everyone knows markets move in waves and this is especially true following big directional moves. The index broke through 4k for the first time on April 1st and then it sprinted to 4,200. A 5% surge in two weeks is downright impressive and a little sideways consolidation was the most obvious next step. And that is exactly what the index has done since mid-April.
So I ask again, should we be worried about the market’s inability to close the deal and put 4,200 in the rearview mirror? No, of course not.
This sideways consolidation is very normal and healthy behavior following a big and fast move. In fact, I would be far more concerned about the sustainability of the bull market if that 5% move continued to 10% without taking a break.
Resting here is the right call and it sets a solid foundation for the next leg higher.
As I often write, something that refuses to go down will eventually go up and that is the case here. As hard as bears are trying to break this market, they cannot get the job done. Their failure becomes our gain.
Keep holding for higher prices and lift our stops once the index gets above 4,200.
Monday was a good day for the FAANG stocks, especially FB and GOOG. These are the biggest and most important stocks in the market and their underperformance has been weighing on the entire market. If their recent outperformance continues, expect these stocks to lift the entire market. If their underperformance resumes, expect them to drag all stocks down.
These highflying stocks are the canary in the coalmine and if they start struggling again, all investors need to be paying attention. Let’s hope it doesn’t get to that.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.