• The September 2nd high on S&P 500 could prove to be the top.
  • Technically, the pattern indicates the lower-high double top.
  • Fundamentals support the change in trend.

S&P 500 (SPY) is approaching the major turning point, technically and fundamentally – the Trump stocks market rally is about to expire.

Timing the Top

  • The S&P 500 all-time-high point was reached on September 2nd (3579 on December 2020 futures contract). This point was reached after the blow-off top breakout above the previous all-time-high on August 24 around the 3400 level. 
  • The big-tech sell-off caused the correction from the top, and the technical breakdown below the 50 day moving average (50 dma).
  • However, the correction reversed with another “spike” above the 3400 level and the 50 dma, but below the previous all-time-high of Sep 2nd.
  • Thus, at this point S&P 500 pattern is indicating the lower high double top.
  • More importantly, the key level of 3400 and the key 50 dma support are converging. As of December 20th, the S&P 500 is still above the key supports. However, the breakdown below 50dma is likely to indicate a major turning point – and validate the September 2nd high as the top
  • However, any attempt to decisively breakdown the key support has to be validated with the fundamentals.


  • US Election: the polls, the betting markets, and the prediction markets are currently predicting Biden victory and Democrat control of the Senate and the House. Thus, it is likely that there will be a major policy change, most importantly the reversal of Trump corporate tax cuts and business de-regulations. 
  • Second wave COVID-19: the current predictions are that social mobility will have to be significantly reduced in the US and Europe to limit the spread of coronavirus via new lockdowns. Many European countries have already implemented some limited lockdowns, and these measures are expected to accelerate as the winter approaches.
  • US Fiscal stimulus uncertainty: As the US faces the second wave of COVID-19, the US lawmakers are not able to agree on the next round of the fiscal support. 
  • The Contested Election risk: the major risk is that US election fails to produce a clear winner. In such scenario, the civil unrest could ignite with an uncertain outcome.   
  • The stock market  bubble: Finally, the stock market valuations are extremely high by historical standards, with S&P500 PE ratio at 38 and the forward PE above 25 (historical average is around 15). 


Technically, S&P 500 is showing a lower-high double top pattern, and the breakdown below the key supports (the 3400 level and the 50dma level) will likely lead to a new prolonged downtrend – bear market, with the next stop at the 200dma level at around 3120 level. The fundamentals support the change in trend.