26 Dec 2021 SPX Weekly - Santa Rally?

Accuracy: 2/3 (67%)

Before I get into last week's review, I just want make a note that there's differences in SPX500USD (OANDA:SPX500USD) ticker vs SPX (SP:SPX) on TradingView. Apparently, there's a few dollars difference in the latest price. I'm not sure why but just want to point it out. So I will be referencing SPX for the actual price since that's what we are trading while looking at SPX500USD more for premarket technical analysis.

Last Week

So last week I marked a support at the 4550 area, which immediately came true on Monday market open. Then followed by 3 days of strong rally. So I count that to my prediction being correct.

Let's take a look deeper into the 30 min chart, on the SPX500USD.

We can see that after a double bottom on Monday, it goes into a strong consistent uptrend. Testing on a almost perfectly straight trendline that coincides with the 50 moving average. Closing at a new ATH close on Friday, 4725.7 on SPX.

Upcoming Week

Ok so in the above 30 minute chart, you can see that the trendline is well supported and there's a potential support area around 4716 area (SPX500USD). But there's a discrepancy when we look at the SPX chart.

On the SPX 30 minute chart itself, we actually see this trendline broken. And of course we won't see the 50 moving average aligning because there's much less candles without the premarket data. So that brings us to, which chart to trust?

That brings me to look at another ticker - ES1! (S&P E-mini Futures)

Here we can see that it's very similar to the SPX500USD chart. So for me I will still put my weight on SPX500USD and ES1! chart for the potential support area of 4716. But also note that at the start of the post, I mentioned there's a slight difference in price for SPX and SPX500USD. So don't take that price point too with too much weight, as we should not. We should just take it as a reference area of support. So in this case, the better reference is the 50 moving average.

Now let's go back to the daily candle. We know that SPX has now broken ATH and had a new ATH close. Looking back in the previous high points, the previous ATH close is actually 4712 and many rejections beyond that.

If we put together the 2 different support reference, we can say the 4712-4716 area would be a good retest zone before going higher.

So on Monday if we can test that area successfully, it should be a bull week.

Economic Calendar

Do take note my timezone is GMT+8. You can change that to your timezone on the top right of economic calendar.

As usual we want to know what's happening next week to see what are the key events that will cause more volatility. Among the 3 stars, the Initial Jobless Claims on thursday would probably be the biggest volatility event. Other than that, there shouldn't be much surprise unless there are new news that can shake the market.

Omicron

The other big thing that's impacting the recent moves in stock market is none other than Omicron. What we know from the news update so far, though not conclusive, is that Omicron spreads much faster than Delta variant. But we've yet to see death rates increase relatively. It's starting to seem like Omicron is leading Covid to be more of a mild flu and might eventually be the key to stopping this pandemic.

But like I say, it's not conclusive. From a financial market perspective, we need to be aware of both sides of the story.

If Omicron is indeed less critical, we should see less volatility in the stock market because the upcoming news catalyst on omicron will more often be good news with regards to the pandemic.

If Omicron is found to be more deadly, we might expect huge volatility as it will prolong the pandemic while the Feds have already started tapering.

I believe Omicron updates in the coming weeks will more or less determine where the market is heading.

Santa Rally

How can we miss this topic for this week's SPX Weekly right?

Let's start with some statistics, there's no need to do it ourselves. There's lotsa information out there.

From these sources we can see statistically, this Santa Rally period have historically risen 76-77% of the time. But keep in mind that it's just a higher percentage that there will be better performance.

On Wikipedia, we can see what are the potential causes:

There is no generally accepted explanation for the phenomenon.^[2] The rally is sometimes attributed to the following:

• Increased investor purchases in anticipation of the January effect^[2]
• Lighter volume due to holiday vacations makes it easier to move the market higher^[3]
• A slow down in tax-loss harvesting that depresses prices at the beginning of December^[3]
• Short sellers / pessimistic investors tend to take vacations around the holidays^[2]

Santa Rally is statistically higher in terms of performance but NOT 100%.

Prediction

So putting all the above together, I will still lean towards a positive week ahead.

While 4712 is the daily support area, within 1 day we should see it tested. We are unsure what's gonna happen the next 4 days of the upcoming week.

So I want to be conservative, so I will say SPX will stay above 4666, which is where I project the next support area by extending the 50 moving average and identifying past tested areas.

SPX to close above 4666 by end of next week, also end of the year.

Trade Setup Review

Last week I did a potential trade setup for the week based on the conservative support of 4550. But reality is really unpredictable. It seems not realistic to decide on a trade when market is not open as we saw how it developed. On Monday itself even during premarket. SPX had a fast correction and approaches my support area.

So at that point it's not practical for me to apply the same trade for the week. Upon seeing the double bottom near my resistance area, I did had quite a few different bullish trade for the week entered in different days.

So my point is things can change really fast when market is open, I can only determine some key areas to look at. To then predict what I think will happen next week.