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S&P 500 Lower Gaps Continue as Trade War Confidence Erodes

S&P 500 Lower Gaps Continue as Trade War Confidence Erodes

Peter Hanks, Strategist

S&P 500 Outlook:

  • The S&P 500 has suffered an average -1.43% gap lower on Monday’s this May
  • In the month to date, over 71% of all trading sessions have seen the index open lower than it closed the session prior
  • Retail traders are overwhelmingly short the S&P 500, find out how to use IG Client Sentiment Data with one of our Live Sentiment Data Walkthroughs

S&P 500 Lower Gaps Continue as Trade War Confidence Erodes

Trade war tensions continue to weigh on the S&P 500 after the United States’ decision to blacklist Huawei on concerns of national security risk. In turn, many of the Index’s top growth stocks were crippled in Monday trading and the decision could have deeper ramifications for the tech industry – particularly semiconductors. While the longer-term implications unfold, the immediate reaction was clear.

S&P 500 Price Chart Daily Time Frame (March 2019 – May 2019) (Chart 1)

S&P 500 Lower Gaps Continue as Trade War Confidence Erodes

Gap percentage indicator in red

Staying true to form, the S&P 500 staged another gap lower at Monday’s open. The -0.62% gap was the third consecutive lower Monday open for the Index which is now on pace for the most bearish gaps in a month since last May when it opened lower 16 times in 22 sessions.

S&P 500 Gap Measure Indicator: Daily (January 2018 – May 2019) (Chart 2)

S&P 500 Lower Gaps Continue as Trade War Confidence Erodes

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While the number of gaps is likely just a coincidence, some traders may put forth the “sell in May and go away” idea as a driving force behind the moves. That said, the phenomenon has proved less reliable in recent years and the onset of fundamental factors has undoubtedly played a major role. With 8 sessions left in the month, the S&P 500 looks poised to end lower – currently -3.75% beneath its opening price in May.

S&P 500 Lower Gaps Continue as Trade War Confidence Erodes

If last year was any indication, the months following May could continue the recent trend. From May to December 31, 2018, the S&P 500 shed roughly 5% - the majority of which was lost in December’s rout. In the shorter-term, both President Trump and Fed Chairman Jerome Powell are slated to speak Monday night. Given the fragile state of trade tensions and the market, traders should look to limit risk exposure over weekends, and key an eye on volatility for hints of rising uncertainty.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: EURGBP Extends Winning Streak as Brexit Uncertainty Weighs

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