S&P 500 eyes another test of 6,920 in late December

By midweek, the odds for a year-end Santa Claus rally in US stocks looked bleak. Yet, in a stunning reversal, the S&P 500 Index (SPX) surged by over 1.5%, rising from 6,730 on Thursday and Friday, thus breathing new life into hopes for a strong 2025 finish. As Monday's trading session kicks off, the momentum remains intact, with bulls likely eyeing a run back to 6,920 and another attempt at reaching all-time highs.

The selling wave that took place from December 12 till December 17 actually did the market a favor: it pulled the RSI back from overheated levels, resetting the stage for a new potential advance. The Stochastic lines crossed near oversold territory, adding to signs of shifting sentiment from bearish to bullish. Unlike the prior correction, this dip barely lasted a day below the 50-day moving average—a strong signal that immediate support has firmed up around 6,730 instead of 6,550.

Seasonal factors are also in play. The stretch between Christmas and January 2 has historically been a reliable tailwind for US stocks, bringing a 1.3% gain on average. With the S&P 500 still off its record highs, there is little pressure to lock in profits on existing long positions. On top of that, for the first time in eight years, American equities are trailing global markets—the MSCI World Ex USA Index has delivered nearly twice the returns of SPX year-to-date. 

Investors remain laser-focused on artificial intelligence (AI) firms. Bubble fears linger in the background, but so far they have only been enough to trigger short-lived pullbacks. The battle between AI enthusiasts and skeptics will rage on into 2026, but a major shift in momentum is unlikely to happen while holiday-thinned trading keeps volumes light.

Pay attention to the following trading plan:

Buy the S&P 500 Index in the 6,800–6,850 range. Place Take profit at 6,920. Set Stop loss at 6,730.