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Market Breaking Out or Topping Out?

With the S&P 500 Index trading sideways for over the past two months and now treading along the upper end of its trading range, investors continue to wonder if the market is poised for a major breakout that will send SPX much higher, or is this the market topping out?


However, the market is without headwinds as well as tailwinds. First, the headwinds are COVID-19 pandemic continues to spread both domestically and globally. Without a stimulus package, the US economy may soon show signs of slowing. Second and third waves and the subsequent lockdowns may begin to impact many as we head into the Holiday season.


The tailwinds are the FED, and the Central Banks continue to be accommodating (easy money). Election concerns have abated. The uncertainties surrounding a contested US presidential election will soon subside. Although another recession is possible, it is not likely. The market will begin to look beyond the recovery to the start of a sustainable economic recovery. Several COVID-19 vaccine candidates are currently in development. The clinical trials are showing promising with recent results as high as 90-95% efficacy.


From a technical perspective, many investors continue to watch for technical signs to confirm the next major trend in the stock market. The S&P 500 Index (SPX) has once again rallied toward critical resistance along 3,588-3,646, corresponding to the Sep/Nov 2020 highs. A convincing breakout confirms the start of the next major SPX rally. On the other hand, repeated failures to clear formidable resistance at 3,209.5-3,234 (Sep/Oct 2020 lows) coupled with a violation of the pivotal 200-day ma (3,145.5) warn of the next significant market decline.


With the SPX trading at a critical juncture – it is reasonable to expect it to break out of its range or top out very soon.


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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