S&P 500 Index consolidates recent gains, remains above 4600

• The S&P 500 is consolidating at record levels above 4600.
• Dip-buyers and bargain-hunters will be eyeing retests of support at 4550 and around 4460-4480.

After closing above the 4600 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 intra-day basis, the index has swung within a 4595-4620ish range and is right now trading close to 4610, putting it on course for another record close. Given the sheer pace of gains in recent weeks, it would seem reasonable to see a period of relative underperformance going forward or perhaps even a bit of a profit-taking driven technical retracement. One key level that any potential patient but dip-hungry equity bulls would be looking at would be the high from back in September at around 4550, which acted as a decent area of resistance and then support as it was broken through in October. If this level is a little too obvious and if stops are triggered, deepening the pullback, the next area to look at would be the 4460-4480 zone, where a late August high, the 21 and 50-day moving averages each resides. Again, this might be another place the dip-buyers want to get involved.

Of course, whether or not dip-buyers will actually show up or not will depend on whether any retracement lower is predominantly being driven by position adjustment or an actual deterioration in the fundamental backdrop. A negative economic shock (perhaps a new, highly dangerous Covid-19 variant, or a fresh spike in energy prices) could fulfill this criterion, as could a hawkish shift in Fed policy that is deemed by market participants as a “policy mistake” (i.e. that the Fed’s overly hawkish stance will hurt growth or even trigger a recession). Equity investors don’t seem overly worried about these risks right now and Q3 corporate earnings have, thus far, been (mostly) bumper. But if any such negative fundamental scenarios were to unfold, dip-buyers would be well to be a little more cautious.