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The S&P 500 looks set to close 2020 out with an impressive gain of around 15 percent, marking an incredible turnaround for the index following the early year flash crash towards the 2,190 support level.
Positive news surrounding the COVID-19 relief bill has boosted the index back to new all-time highs, alongside the inclusion of Tesla Inc in to the S&P 500, which is now the sixth-largest stock inside the index.
Going into 2021 the index is well-placed to weather further economic storms driven by the COVID-19 pandemic, as many of heavyweight stocks inside the S&P 500 benefit from the new trend of working from home.
The top 5 stocks inside the S&P 500 are currently Apple, Microsoft, Amazon, Facebook, and Alphabet. All of these tech stocks have been beneficiaries of the COVID-19 crisis, particularly in the aftermath, and have potential to rally in 2021.
In terms of the actual best performing stocks for 2020 inside the index, Tesla, Nvidia, PayPal, Etsy, and currently L Brands lead the way. PayPal in particular looks bullish going into 2021, due to the payment companies recent inclusion of cryptocurrencies such as Bitcoin, Ethereum, and Litecoin, which continue to soar in value almost on a daily basis.
In terms of upside potential for the index itself, technical analysis is painting a bullish price picture, following the recent breakout above the the September 2020 trading high, around the 2,590 level.
S&P 500 Short-Term Technical Analysis
The four-hour time frame shows that a major range break has recently taken place, following the late-November breakout above the former yearly-high, around the 3,580 level.
A breakout from a horizontal price channel can clearly be seen across the mentioned time frame. According to the size of the horizontal price channel, the S&P 500 can move higher by around 400 points in the short-term, which means that bulls may be preparing to rally towards the 4,000 resistance level.
Source by ActivTrader.
Lower time frame analysis shows that bearish MACD price divergence has formed during the latest rally towards the 3,750 area. According to technical analysis, the bearish divergence extends down towards the 3,550 area.
If the negative divergence is reversed, it may present an excellent chance for traders to buy into the index from a more advantageous position in 2021.
S&P 500 Medium-Term Technical Analysis
Looking at the daily time chart, an extremely large bullish reversal pattern has been activated after the index started to move above the 3,400 technical level.
According to the overall size of the inverted head and shoulders pattern, the index could rally towards the 4,600 resistance level over the medium to long-term.
Source by ActivTrader.
The daily time frame is showing that bearish MACD price divergence has formed aswell, and it is currently extending down towards the 3,550 support area.
It is also noteworthy that the Relative Strength Index is also showing sizable amounts of negative price divergence. Traders should note that the divergence started around the 3,510 level.
