S&P 500 To Close Out 2024 On A Positive 

S&P 500 Nears Year End 

There’s a lot of activity in the S&P 500 currently. Whether it’s rebalancing within investment funds, dark pool activity or options flows, now is a time for retail investors to maintain focus.

Santa Rally

There are early signs that the Santa rally may have faltered. Over the last three trading sessions, the percentage of stocks that are up has reduced significantly.

The percentage of stocks above their individual short—and medium-term moving averages is clearly declining. If the S&P 500 can take back the 50-day and 100-day moving averages at the start of this week, that would be constructive moving into January.

S&p 500 Returns

A positive Santa rally matters. Statistically, the S&P 500 returns 10% on average in the year following a positive Santa rally. In contrast, the year after a negative Santa rally returns just 5% on average.

The dollar remains strong, and the 10-year bond yield remains on an upward trajectory. The Federal Reserve cut interest rates by 100 bps in 2024, and the bond yield has gone up by 100 bps. That divergence is significant.

Increased Probability Of A Pullback 

The probability of a 10% pullback in the S&P 500 can’t be ruled out. It’s been more than 420 days since the S&P 500 experienced a pullback of 10%. Statistically, the probability of a pullback in the first or second quarter of 2025 is high.

In the last five trading days, technology, financials, healthcare, and semiconductors were among the best performers, with mega-cap stocks (37% of the market) holding up the market. However, market breadth remains weak, and most of the decline in the S&P 500 on Friday was in the mega-cap stocks, with some rotation into defensive stocks.

S&P 500 Key Levels

Tomorrow, the S&P 500 opens in positive gamma. The key levels remain unchanged from the start of last week. The gamma flip zone is 5955, the call resistance is 6132, and the put support is 5860.

A new low in the S&P 500 this week would not be a good sign. If it sells below the 20-week moving average and 5700, it could cascade further. However, if the S&P 500 remains between 5950 and 6050, that would be a positive outcome for 2024 and a positive sign for trade in January.

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