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Asset Watch

Could Christmas come late for the S&P 500 bulls?

 

Tuesday, December 27, 2022

It’s been nothing but disappointment across Wall Street recently, as the S&P 500 has fallen by 5.8% in December. Moreover, with Q3 GDP revised upward and the FOMC reiterating its hawkish message, higher interest rates are more likely than not in 2023.
Yet, CFRA Research noted on Dec. 23 that “U.S. stocks have risen during the last five trading days of December and the first two days of January about 75% of the time… a pattern attributed to low liquidity, tax-loss harvesting and investing of year-end bonuses.”
As a result, if some holiday cheer is on the horizon, it could begin this week. But, before participating, you should wait until the S&P 500 tips its hand.
S&P 500 Stock Chart Trading View

For example, the December sell-off has created immense technical damage, as the S&P 500 has lost its 20, 50 and 100-day moving averages. Likewise, the 50-day MA (the black line) is now resistance, as the index could only hold the key level for a short period on Dec. 21.

Therefore, for a Santa Clause rally to materialize, the index needs to hold above 3,886. Thereafter, next-level resistance is the 100-day MA (3,915) and then the 20-day MA (3,943). Furthermore, the left and middle areas of the chart show that the 100-day MA (the red line) marked the intraday bottoms on Nov. 17, and from Dec. 6 to Dec. 12, so it may cap the S&P 500’s potential upside.

Thus, are ~75% odds worthwhile, or should you proceed with caution?


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