SPX Spotlight - Tuesday, Dec 24, 2024: Santa Claus Rally in Full Swing
Did we just hit the pre-FED levels as if nothing happened? Is 6,100 within reach?
Introduction
The S&P 500's Christmas Eve performance marks a pivotal moment in the 2024 market narrative, with the index staging a remarkable rally that could define the year's final trading days. The market has witnessed an extraordinary year, with the S&P 500 surging over 25% and setting the stage for a potential historic finish.
The "Santa Claus Rally" - a traditional period of stock market gains between the last trading days of December and the first two trading days of January - appears to be taking shape. On Tuesday, the S&P 500 surged 1.1%, reversing earlier December losses and signaling potential momentum into the year's end.
Market Drivers and Economic Reports
The S&P 500's Christmas Eve rally was driven by several key factors:
Tech Sector Strength: Technology stocks led the charge, with the Magnificent Seven tech companies showing particularly strong performance. Tesla surged 7.4%, while Broadcom climbed 3.2%. This tech-driven momentum helped push the Nasdaq composite up by 1.4%.
AI Optimism: Analysts' bullish comments on artificial intelligence potential boosted semiconductor stocks. Broadcom and Advanced Micro Devices (AMD) continued to rise, benefiting from positive forecasts regarding AI revenues.
Santa Claus Rally Expectations: Investors' hopes for a traditional year-end "Santa Claus rally" contributed to the positive sentiment. Historically, the S&P 500 has averaged a 1.3% gain during the last five trading days of December and the first two of January.
Economic Data: Despite the overall positive market sentiment, some economic indicators were less encouraging:
The Conference Board's consumer confidence index dropped to 104.7 for December, below expectations and its lowest point since September.
Durable goods orders fell by 1.1% in November, marking the largest month-over-month decrease since June.
Corporate News: Several company-specific events also influenced the market:
Honda initiated formal merger discussions with Nissan, boosting its stock by over 12%.
Xerox announced plans to acquire printer manufacturer Lexmark, also seeing gains exceeding 12%.
American Airlines briefly grounded flights due to a technical issue but managed to shake off early losses
Technical Analysis
Recap
Markets are slicing through our key zone as discussed in the previous article. On Dec 23th we tried approaching the resistance level at 5,997 and on Dec 24th we cut right through it. We are past the 6,035 level that acted as support, sitting at pre rate cut that pulled the market down.
Bull Case
It would be foolish to bet against the markets going down. If the market closes above 6,035 level, the next target would be 6,059 where it would meet its first resistance. A proven support level at 6,035 might help the market push higher for the remainder days of this year.
Bear Case
We may be looking at a false breakout of a previous support at 6,035. If that is the case, we may see a rejection from the support, making it a key resistance level and retracing it to 6,020 level.
Market Sentiment and Key Indicators
VIX could be approaching a long standing support at 13.75 setting up a stage for the market to push a bit higher.
The level at 13.75 might not be sustainable and we may see a retracement at 15.20 level.
Key Takeaways & What’s Next
Support and Resistance Levels
The level of 6,035 now serves as a key support for the S&P 500. Traders should watch this level closely in the coming days. On the upside, the next major resistance could be around 6,100, given the current momentum. Some analysts are even eyeing a potential move towards 6,250 in the near term, while some maintain a year-end target for the S&P 500 at 6,000, suggesting there might be limited upside from current levels.
Economic Reports
Initial Jobless Claims
The U.S. Department of Labor will release the latest Initial Jobless Claims data for the week ending December 21, 2024. Last week, claims decreased to 220,000, beating market expectations. Analysts are forecasting a slight increase to 223,000 for this week's report.
Key points to watch:
Any significant deviation from the forecast could influence market sentiment
The four-week moving average, which stood at 225,500 last week, helps smooth out weekly volatility
Continuing jobless claims, which were at 1,874,000 in the previous report
Federal Reserve Balance Sheet
The Fed will also release its weekly balance sheet report. As of December 18, 2024, the Fed's balance sheet stood at $6.89 trillion, down from $6.9 trillion the previous week.
Points of interest:
The balance sheet has been steadily decreasing since its peak in April 2022
The Fed's securities holdings have declined by about $1.8 trillion since June 2022
Changes in the balance sheet can provide insights into the Fed's monetary policy stance
Closing Thoughts
SPX sitting at a key pivotal point, tomorrow’s Initial Jobless Claims and Fed’s balance sheet could be enough catalyst to swing the markets.
Comment your thought below.