The Trader Harbor
  • Business
  • Politics
  • World News
  • Stocks
  • Business
  • Politics
  • World News
  • Stocks

The Trader Harbor

Stocks

What Happens When the S&P 500 Breaks Below Gap Support?

by admin May 24, 2025
May 24, 2025
What Happens When the S&P 500 Breaks Below Gap Support?

My main question going into this weekend was, “Will the S&P 500 finish the week above its 200-day moving average?” And while the S&P 500 did indeed finish the week above this long-term trend barometer, our main equity benchmark is now within the gap range from earlier this month.

We’ll get to that crucial S&P 500 chart a little later, but first, I’d like to explain why gaps matter, why the price action post-gap is so important, and then apply these lessons to the SPX.

The “Gap and Run” Scenario Suggests an Influx of Buyers

One of two things tends to happen after a gap higher within an uptrend phase. The first scenario, which I call a “gap and run” pattern, is when additional buyers come in to push the price even higher.

Microsoft Corp. (MSFT) features this gap and run pattern, with the gap higher on their Q1 earnings report followed by an additional appreciation in price.  Basically, investors are not afraid to accumulate more MSFT, even after the stock gapped up from $395 to $430 overnight.


Did you catch our recent webcast, “Sell in May 2025: Seasonal Strategy or Outdated Myth?” We looked at the performance in May-June-July since the COVID low, then made a comparison between 2025 and the first half of 2022, when a break below the 200-day moving average was a sign of much further deterioration to come.  Check out this excerpt on our YouTube channel!


Shares of Howmet Aerospace (HWM) demonstrated a similar gap and run pattern recently, although this example is perhaps even more significant because the gap took the price to a new all-time high! Again, we can see that additional buyers are coming in and accumulating more HWM, fueling further gains after the gap.

The “Gap and Fail” Pattern Shows a Lack of Willing Buyers

Sometimes, a chart will show a very different path after the gap, forming what I’ve termed a “gap and fail” pattern.  Unlike the previous examples, here you’ll see that a lack of willing buyers causes the stock to quickly reverse lower into the range of the price gap.

In the case of semiconductor producer Monolithic Power Systems (MPWR), the gap higher earlier this month was followed by two additional up days, which propelled the stock above its 200-day moving average. This short-term pop higher was followed by a sudden downside reversal, representing an exhaustion of buyers after the upside gap.

First Solar (FSLR) is demonstrating a similar pattern to MPWR, with a gap higher which pushed the stock just above the 200-day moving average to test the 38.2% Fibonacci retracement level. A couple days later, FSLR was back below the 200-day moving average, followed by further deterioration that eventually closed the gap from earlier in May.

The S&P 500 Could Test Its Own Gap Support

So what do those example charts have to do with the S&P 500? Well, the SPX traded higher for about a week after the upside gap in early May. We’ve drawn a green-shaded range to highlight the gap from around 5725 to 5780. This gap includes the 200-day moving average and also lines up with the late March swing high.

I see the S&P 500 as in a constructive pattern as long as it remains above this price gap range. If we can see an upswing after this week’s pullback, then this could just be a pause within a broader recovery phase for the S&P.

On the other hand, if we see any further price weakness from the major benchmarks next week, then the chart of the S&P 500 will start to look pretty similar to other “gap and fail” charts that confirm a lack of willing buyers. If we do see that downside follow-through next week, we’d expect further deterioration to the 5500 level, representing a 50% retracement of the February to April selloff phase.

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

marketmisbehavior.com

https://www.youtube.com/c/MarketMisbehavior


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

0
FacebookTwitterGoogle +Pinterest
previous post
3 Stocks to Watch While Everyone’s Staring at NVIDIA
next post
Moving from Thrust Signals to a Bull Market

Related Posts

Sentiment And Small Caps Are A 1-2 Punch,...

March 5, 2024

S&P 500 Selloff: Bearish Rotation & Key Downside...

March 7, 2025

Is a New Market Uptrend Starting? Key Signals...

March 17, 2025

Earnings Watch: Smart Setups in HD, PANW, and...

May 20, 2025

Equity Markets Struggle to Hold onto “Go” trend...

April 19, 2024

Week Ahead: Putting Market Moves in Perspective; Watch...

October 6, 2024

Why Stock Outperformance Might be ENDING!

September 11, 2024

What Does This Mean for the S&P 500...

August 21, 2024

Election Aftermath: Unleashing Profitable Small Cap Stocks

November 8, 2024

Joe Rabil’s Undercut & Rally Pattern: From DROP...

June 22, 2025

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Latest

    • Apple reveals complex system of App Store fees to avoid E.U. fine of 500 million euros

      June 30, 2025
    • Breakdown of NVDA’s Stock Price and S&P 500: Actionable Technical Insights

      June 30, 2025
    • Thom Tillis announces retirement from Senate after clash with Trump

      June 30, 2025
    • SCOOP: House Republican eyes bid for Thom Tillis Senate seat after Trump attack

      June 30, 2025
    • Dem delay tactic ends, debate begins on Trump’s ‘big, beautiful bill’

      June 30, 2025
    • GOP, Dem senators remain divided over Medicaid after Trump’s ‘big, beautiful bill’ vote

      June 30, 2025

    Categories

    • Business (1,272)
    • Politics (3,873)
    • Stocks (1,477)
    • Uncategorized (45)
    • World News (1,265)
    • About us
    • Contact us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: TheTraderHarbor, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 thetraderharbor.com | All Rights Reserved