Of the four market dimensions of price, time, sentiment, and momentum the most dominate currently for US stocks is the time dimension. During the seasonally bearish months of September and October US stocks had declines. Then upon entering the most bullish month of November, stocks rallied strongly.
The 11/10/20 post “S&P 500 Could be in a Short – Term Decline” speculated the S&P 500 (SPX) could drop into a bottom at Fibonacci support. As of 11/13/20 the SPX had failed to reach even the .382 retracement level. Because of the fractal nature of the stock markets, patterns on a daily charts can also appear on an hourly charts. On the daily SPX chart, the 10/30/20 bottom held slightly above the 09/24/20 low.
The hourly SPX chart courtesy of Trading View illustrates how the 11/12/20 bottom has held above the 11/10/20 low. It’s possible the November 12th bottom could hold – note the hourly Stochastic reached the oversold zone, and there could be additional bullish evidence on 11/16/20.
The SPX closed its session on 11/13/20 near the high of the day which usually implies upside follow through the next trading day. The hourly Stochastic has reached the overbought zone, however Stochastic does not forecast tops as accurately as bottoms. Note the hourly Stochastic remained in the overbought zone from 11/03/20 to 11/05/20. A break above the .618 resistance level on 11/16/20 could open the door for a move to a new all-time high.
Additional bullish evidence comes from the daily Russell 2000 (RUT) chart.
Since 2018 and through most of 2020 RUT has been lagging the SPX, now its leading. On 11/13/20 RUT exceeded its all-time high made on 11/09/20 while the SPX is still below its 11/09/20 top.
RUT is composed of small cap stocks which typically rally and outperform large caps stocks late in a bull market cycle – investors and traders are looking for bargains. Small cap stocks usually reach their bull market peaks before large caps. If in the near future, we see RUT again underperform the SPX it could be a signal of a looming bear market.
US stocks are in a seasonally bullish time zone that could continue into at least early January 2021. The SPX could climb into the 3800 area.