Santa Claus rally is nowhere in sight

Investing.com -- With just over six trading days left in 2024, the Santa Claus rally in stocks is “nowhere in sight,” Piper Sandler analysts said in a note.

The investment firm’s technical research highlights that U.S. equities remain under pressure following the Federal Reserve’s rate cut and a less dovish outlook for 2025.

Major indices are pulling back sharply from their year-to-date highs, with declines ranging from 5% to 10%. However, “with the market’s primary uptrends still intact, we are not giving up on the potential for a Santa Claus to come to Broad & Wall this year,” analysts Craig W. Johnson and Scott K. Smith wrote.

Among indices, the Nasdaq Composite leads technically, down just 4% from its peak while staying above its 50-day moving average.

The S&P 500 is testing critical support near its November 6 bullish gap at 5,864. Further downside risks point toward the November lows at 5,700. For the Dow Jones Industrial Average , a 10-day losing streak was narrowly avoided, but its key supports are slipping toward 41,650 and the 200-day moving average below 41,000.

"Despite this, it is important to recognize that the primary uptrends from October 2023 lows remain intact as the indices pull back 5% to 10% from recent highs,” analysts said.

“Wait for support confirmation around post-election gaps and Q4 lows before buying the dip for a potential Santa Claus rally into the new year,” they added.

The VIX volatility index, also called the “fear gauge,” surged to a four-month high between 24 and 28.

Meanwhile, the 10-year U.S. Treasury yield climbed to 4.56%, just below its year-to-date highs of 4.75%, which analysts see as a critical resistance level.

Sector-wise, Energy, Materials, and Healthcare entered oversold territory, with several sectors posting fresh 26-week lows. Breadth indicators are deteriorating, with advancers heavily outnumbered by decliners. Piper warns that its 40-week technique could soon trigger a sell signal.

Adding to the bearish sentiment, the U.S. Dollar Index hit a two-year high at 108.50, suggesting further upside toward the 109.50 range. Commodities, on the other hand, are under pressure, with gold and silver breaking key supports.

Source: Investing.com