Lawmakers’ inability to find the “fiscal cliff” solutions has spoiled the Santa Rally. Let’s get to the charts.
On the medium-term P&F chart the price has been rejected from the Bearish Resistance line and reversed back down thus prompting to close long positions (pink box) if they were opened upon the Low Pole Reversal pattern formation (lime box). Note that the price is in the confirmed medium-term downtrend on this chart and the current reversal supports the bearish case.
However, the last long column of Xs represents a strong bull counterattack, so it is possible that the ongoing retracement is a part of a consolidation process before the next leg up. Watch the resistance level at 1440 and the support level at 1390 for a clue who is winning the battle.
A closer look doesn't clear the picture. The short-term uptrend from the November low is intact but the price is on a sell signal from 1410 (pink box) suggesting no positions currently.
The Sector Breadth Model, on the other hand, didn't show signs of deterioration over the past week but some strength in the Industrial sector.
Overall, the market is in the process of making a decision what direction to go next. No urgency to force trades until the market tips its hand. Disclaimer: I express only my personal opinion on the market and do not provide any trading or financial advice (see Disclaimer on my site).