S&P 500 Index Consolidates Recent Gains, Stays Above 4,600

• The S&P 500 is consolidating at record levels above 4,600.
• Buyers on the dips will be on the lookout for further tests of support at 4,550 and around 4,460-4,480.

After closing above the 4,600 level for the first time last Friday, meaning the index ended the month up nearly 7.0% (its best month since November 2020), the index has been consolidating. On an intraday basis, the index has swung within a range of 4595-4625 and is currently trading near 4,610, putting it on track for another record close. Given the strong pace of earnings in recent weeks, it would seem reasonable to see a period of relatively underperformance going forward or perhaps even a bit of technical pullback driven by profit taking. A key level that any potential patient, but stock-hungry bulls, would be looking at would be the September high at around 4550, which acted as a decent area of ​​resistance and then support, as it was broken in October. If this level is too obvious and if the stops are triggered, deepening the pullback, the next area to consider would be the 4460-4480 zone, where a late August high resides, the 21- and 50-day moving averages. Again, this could be another place buyers on the dips want to get involved.

Of course, whether or not falling buyers will appear will depend on whether any pullback to the downside is primarily due to position adjustment or a real deterioration in fundamental context. A negative economic shock (perhaps a new and highly dangerous variant of Covid-19, or a new spike in energy prices) could meet this criterion, as could a radical change in Fed policy that participants in the The market considers it a “policy error” (meaning that the Fed’s overly aggressive stance will hurt growth or even cause a recession). Equity investors don’t seem overly concerned about these risks right now and third-quarter corporate earnings so far have been (mostly) excellent. But if these negative fundamental scenarios were to play out, falling buyers would do well to be a bit more cautious.