The S&P 500 is currently facing challenges, as the technical outlook supports this trend. The Double Top pattern near 6921/6919 indicates further weakness, which began its decline on December 12.
Market watchers expect a test of 6683 as the first target, with stronger support likely at 6535. We anticipate initial buying at these levels, along with potential short-covering.
Opportunities To Establish Short Positions
Current market rallies present chances to set up short positions. If the market doesn’t exceed 6769, we may see further declines. However, if it does break past this level, it could rise to 6823/6826, which we expect to act as resistance.
The Santa Rally, which usually lasts until the second week of January, may only provide temporary selling chances. Weekly charts remain negative, impacting longer-term strategies.
It’s important to keep an eye on these levels in the upcoming sessions.
Bearish Double Top Formation
The S&P 500’s recent inability to break through the 6920 area confirms a bearish Double Top formation. On December 12th, the market rejected this level, indicating further downside potential. Traders should consider buying put options or setting up bearish credit spreads, anticipating a move toward the initial target of 6683.
This technical pressure comes as November’s inflation data revealed core CPI stubbornly above the Fed’s target. This raises concerns that interest rates might stay higher for a longer period. Additionally, recent JOLTS data shows job openings at a two-year low, suggesting an economic slowdown. These factors indicate that any market strength in the near future may be short-lived.
We should view any rally towards 6769 as a chance to increase short positions or sell call options against current holdings. The CBOE Volatility Index (VIX) has already risen over 25% this month, reflecting growing anxiety among investors, which tends to precede further declines. If the market surpasses 6769, the 6823/6826 area offers an even stronger opportunity to initiate shorts, as it is likely to serve as a firm ceiling.
While we are entering the season known for the Santa Rally, we should remain cautious this year. Historically, when this seasonal rally fails to materialize, like it did before downturns in 2000 and 2008, it can signal trouble in the upcoming year. The negative trend in weekly charts suggests that larger funds may be preparing for weakness, making any holiday rally an ideal time to sell.
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