Bullish investors have been loving the tape lately with stocks slowly but surely drifting higher.
Even on Sunday evening, the futures market opened with a nice bounce to the upside.
However, that rally was short-lived as sellers quickly stepped in and erased some of those gains. The selling didn’t really pick up until after midnight, where bulls endured five straight hours of selling.
From the Sunday evening high to the Monday morning low, futures on the S&P 500 suffered a peak-to-trough decline of more than 3.4%.
The selling comes into play on fresh worries of a new strain of the coronavirus. It also comes after the new stimulus bill was all but settled, which is potentially lending its hand to a sell-the-news type of reaction.
Further, it comes after Friday’s active session, one of four quadruple witching sessions of the year.
At roughly 1.7%, Tesla is the fifth-largest weighting in the index, trailing Apple (AAPL) - Get Report, Microsoft (MSFT) - Get Report, Amazon (AMZN) - Get Report and Facebook (FB) - Get Report. It’s worth pointing out that Alphabet’s (GOOGL) - Get Report Class A and Class B shares have a weighting of 1.66% and 1.61%, respectively.
After the shakeup, let’s look at the index.
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Trading the S&P 500
The S&P 500 opened lower on the day and briefly broke below the 21-day moving average and November high. It has since hammered off these levels, as it tries to reclaim the 10-day moving average.
Now entering back-to-back holiday-shortened trading weeks, bulls must be on their toes.
Investors with a fresh long position can use Monday’s low at 3,636.50 as their risk pivot. A close below that mark opens the door to a retest of the 3,550 area, roughly where the index finds the October highs and the 50-day moving average.
On the upside, I want to see the S&P 500 reclaim the 10-day moving average. If bulls are really in control, they will reclaim this level then challenge the 3,710 area, as well as the all-time highs near 3,727.
Above 3,727 could open the index up to a push into the 3,800s, with various extensions from several timeframes coming into play between 3,822 and 3,852.