Santa’s rally took another slap to the face yesterday with the S&P 500 closing firmly beneath the 2018 low. Currently trading -9.2% lower amid its worst month since February, the odds of a turnaround look bleak to say the least.
We’ve been tracking the top of the S&P 500 for a while and, while it currently lacks the ferocity of the 1987 top, it is giving the 2007 and 2000 bears a ‘run for their money’. If this does turn out to be a mere correction, it’s certainly an unpleasant one, especially given the time of year.
At -9.2% down for the month, the S&P 500 is making a mockery of its seasonal tendency. Over the past 30 years the index has averaged +1.48% a month and posted a positive close 80% of the time. Of the 6 bearish months in December, its average is -1.89% with the second worst sell-off being -6.1% in 2002. In fact, this is currently its third worst month using data from 1960.
A simpler way of looking at the seasonal table is to only count a month as ‘positive’ if the month gains on average over 50% of the time, or ‘negative’ for bearish months over 50% of the time. From this angle, the only negative month tends to land in September. So, if Santa is banking on a positive close this month, he could well be on the dole by January.
Technically, the daily trend structure is firmly bearish and yesterday’s outside day closed beneath the 2018 low. There’s a risk that the near-term is overextended to the downside as it trades beyond its lower Keltner band. Moreover, yesterday’s low perfectly tested the lower trendline of a bearish channel.
Still, with the index being so emotionally charged, we’d question any urge to buy at these lows. We’d prefer to stick with momentum and wait for prices to consolidate or retrace to an area of resistance, such as the 2585.29-2594.62 resistance zone. Ultimately, we think momentum will take this down towards the June and August lows around 2405.70-2417.35.