A Visit from St. Nick
By Paul Cherney
Note: Paul Cherney will be on vacation Monday, Dec. 23 through Thursday, Dec. 26. His column will return Friday, Dec. 27.
In Thursday's column I mentioned technical measures based on weekly S&P 500 price action combined with weekly NYSE volume measures which might issue a negative signal as of Friday's close. The close for the week is only one of five filters inside the system and two of the other filters had moderated enough that it will be unclear until I run overnight systems whether a signal was generated. I will report on this Monday morning.
I think upside is going to be a struggle, but the positive bias for a Santa Claus Rally cannot be denied. The path of least resistance for prices is probably sideways to lower, but next week's markets could easily see some gaining days. Even if a negative signal is generated by the weekly measures of S&P 500 prices and NYSE volume (referenced above), a modestly positive bias is usually seen in the first two or three trade days following the signal.
The VIX (market volatility index) managed to move back below its 10 day exponential moving average. On Friday, near the close, the VIX's 10 day exponential was near 31.83.
Support: S&P 500 support is 884-867. There is considerable price traffic (support) in the 883-875 area.
Immediate support for the Nasdaq is now 1347-1317.
Resistance: The S&P 500 has resistance at 888-897, then 900-910, then 915-926.27.
The Nasdaq has immediate resistance at 1366-1385.37, and 1381-1412 which makes the immediate focus of resistance 1381-1385.
Tuesday, Dec. 23 (as of the the close of trading) represents the beginning of the last five trade days of the year, which is part of the Santa Claus Rally as described by the Stock Trader's Almanac. The Almanac defines the Santa Claus Rally as the last five trade days of this year and the first two trade days of the next year. For this season, that means as of the close of trading Dec. 23 to the close of trading Friday, Jan. 3. Based on S&P 500 price data back to 1959, historical odds are roughly 8 in 10 (76%) that prices as measured by the S&P 500 will be higher at the end of the Santa Claus Rally. The average gain for the period is 1.5%, so don't expect everyday to be a gainer during the Santa Claus Rally period (starts next week).
Cherney is chief market analyst for Standard & Poor's