S&P 500: Can Santa Crash This Party?
Tim Knight | Dec 25, 2022 11:38PM ET
There are four trading days left in 2022. This past week showed us two things. First, resistance is still in play, as we rejected the 50-day EMA very nicely on Friday. Second, Friday showed us that support refuses to yield as we finish the day with a hardy 60-point bounce on S&P 500. The result is a long wick Doji pattern on the weekly chart, which is relatively neutral. With lighter volumes, we tend to see much more volatile moves, and perhaps that is what we were seeing this week. Who knows?
Regardless, the continued support at 3800 is important to consider for the following week. We could see a rally with some choppy swings or a volatile but controlled descent. I can’t say for sure which direction to expect. I did provide expected zones should we move in either direction.
The zone I most expect is circled in purple on the weekly chart. We could get a choppy move up over the first two days with a drop back down in the next two days to close between 3850-3880. The second scenario I am prepared for (and hoping for) is to drop and hang out in the zone circled in black.
This would be the controlled descent I referenced earlier. This would also get close to my year-end prediction of 3780 that I presented in late November. The last scenario is a light volume but significant move up to the orange-circled zone. This would truly suck as it is possible to rally this high yet stay within a bearish technical resistance as we’ve seemed to manage since June.
This would be a craptastic end to this year. But I don’t think the resistance is gone, which is why this is my least likely expected scenario. Note that there is one more scenario where we drop to the 200-week ema near 3665, but I think this is rather unlikely.
On the daily chart, we can see more clearly the zones I mentioned on the weekly chart. The bullish potential for a rally is signified in the long wicks for the past few days beneath 3800. A swift drop to the red zone is unlikely, as this would completely ignore the apparent supportive buying going on there. However, I think the choppy descent into this blue highlighted zone for three days would yield a 4th-day rollover to close near the lower end of this zone.
From the bullish perspective, we could see a rally into the green zone up to 3920, where I would expect a hard rejection. The last scenario is a rally up into the yellow zone, but this would also need to negate the prior support in that area, which I would expect to now act as resistance. A break above there would be significant and would start the year off on a bullish ascent. I don’t expect this to happen, but I need to acknowledge the potential.
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And there we have it—lots of ifs and maybes. Given the light volume, we may see quick jumps or drops into the extreme ends of these zones, but I would then expect reversals back into these zones, so if you are quick, it may be worth selling some weekly premiums as these move into those extreme zones. The trades will depend on you. I wish you all a Merry Christmas and the best of luck this coming week.
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