Gap Filled: Is the SPX Cleared for Bullish Continuation?
The indecisive price action highlighted last weekend was validated by the pullback observed this week in the S&P 500 $S&P 500(.SPX)$ .
The final week of the year closed in the red, with declines of -1% for the SPX, -1.7% for the $NASDAQ 100(NDX)$ , and -1% for small caps ( $iShares Russell 2000 ETF(IWM)$ ). However, this decline resolves a ‘loose end’ that would have injected significant uncertainty into the price action had we seen an immediate bullish continuation.
The $6,840 gap was filled, just as we considered last weekend and reinforced on Wednesday morning in the mid-week market update. Now, it is time to assess the market structure and key support levels for a potential resumption of the uptrend. For now, the new Central Monthly Level (CML) at $6,837 has provided support, and the price managed to close above its 20DMA, forming a triangle pattern that often precedes a major move.
Last weekend, based on indecisive price action and open gaps in the SPX and NDX, The Weekly Compass anticipated three high-probability bullish setups and two high-probability bearish setups.
The bearish calls performed well: $Tesla Motors(TSLA)$ exceeded its target, falling -7.8% for the week, while $Apple(AAPL)$ declined -0.9% (we will analyze continuation chances). Other bearish setups with lower probability ratings also tracked as expected, with $Palantir Technologies Inc.(PLTR)$ exceeding its target (dropping -11% for the week) and IWM falling -1%.
On the bullish side, Bitcoin broke out above $88K, a key level we reinforced last Wednesday morning. Additionally, $Amazon.com(AMZN)$ exceeded its bullish target before reversing rapidly, and $Broadcom(AVGO)$ also hit its target before pulling back.
Anticipating these moves is a discipline based on the technical analysis shared here every weekend and Wednesday, combined with the support and resistance levels posted on Fridays. Technicals provide directional expectations, while S/R levels identify likely reversal zones. Crucially, the Central Weekly Level (CWL) serves as your risk management line: if breached, the thesis is invalidated, allowing you to protect capital.
For example, $Netflix(NFLX)$ jumped on Monday as expected, nearing its target before reversing, the setup can be considered validated. Conversely, $Costco(COST)$ opened green but faded well short of its target; the price breached its CWL, invalidating the bullish thesis and resulting in a -0.4% move. Traders who used the CWL protected their capital before the decline deepened.
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