Investing.com — It pulled back on Friday, giving up on the initial ‘Santa Gathering’ rally that began earlier in the month.
According to the BTIG strategist, the index’s rise has been rejected from the previous support trend line and although there are still four days left for the Santa Clause rally to deliver gains, there are concerns of a “bigger decline in January”.
Currently, only 58% of S&P 500 components are trading above their 200-day moving average (DMA), marking the weakest reading of the year and snapping a 265-day streak of outperformance.
“While it was clearly a significant top, the four previous occurrences of such streaks were actually medium-term bullish, so it’s not a very clear signal,” strategist Jonathan Krinsky said in a note.
Krinsky notes that the S&P 500 is also experiencing its first weekly sell signal since September, as shown by the Weekly Moving Average Convergence Divergence (MACD), a trend-following momentum indicator. This change in momentum does not necessarily predict lower prices, but it does suggest a change in the weekly trend.
Furthermore, high-beta stocks stopped their uptrend, leading to additional caution for such stocks in January, particularly due to the possibility of rotation and tax selling.
In contrast, small-cap stocks, as represented by the iShares ETF (NYSE: ), are still holding support around the 220 level. However, the lack of a strong recovery from oversold conditions is cause for concern among market watchers.
In the options market, the 20-day moving average of the equity put/call ratio is at an 18-month low, indicating a level of market complacency that could pose a risk heading into the new year.
Meanwhile, the bond market is struggling to hold support after a challenging month. Although there could be some support for rebalancing by the end of the year, the general trend in bond prices is downward, with expected higher yields.
According to Krinsky, a drop below 87 for the iShares 20+ Year Treasury Bond ETF (NASDAQ: ) could see the November 2023 gap fill around $85, signaling further pressure on bond prices.
