Will We See a Christmas Rally in the Indices this Year?

Bad news: it’s possible that Santa Claus may not come to Wall Street at all this year.

BTIG’s chief market technician, Jonathan Krinsky, points out that the S&P 500 index is trying to hold above its 50-day moving average, which is around 6,767 points. The benchmark closed trading on Tuesday at 6,800 points, but during the day it fell to a low of around 6,760.

“About a month ago, the SPX had gone roughly seven months without closing below its 50-day moving average. Now it’s possible that it will close below that level again, after failing to form a new high during the December rally,” Krinsky wrote. “This is a subtle but important change in market character.”

The S&P 500 index has still not surpassed its intraday all-time high of 6,920 points, reached on October 29, despite record closing levels being recorded in December.

In addition, the market’s recent weakness has led to a decline of 0.7% for the index in a month that is historically among the strongest for stocks. On average, the S&P 500 posts a gain of 1.4% in December, according to data from the Stock Trader’s Almanac.

December also marks the beginning of the so-called “Santa Claus rally,” which covers the last five trading days of the month and the first two days of January. During this period, the S&P 500 achieves an average gain of about 1.2%, according to Almanac data.

However, given the index’s difficulty in holding above its 50-day moving average and the weakness observed recently, there is a possibility that Santa Claus may skip Wall Street this year.

“We believe that for now the index is likely to hold above the 50-day average. However, another test in the coming days could lead to a more significant downside break,” Krinsky adds.

The absence of a Christmas rally would also not be a good sign for the stock market in the new year. “The lack of a Santa Claus rally often precedes bear markets or periods in which stocks can be bought later in the year at significantly lower prices,” notes the Stock Trader’s Almanac.