Stock market ignored Christmas rally

29 December 2022 59
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Risk appetite in the stock market waned after news that the U.S. would require passengers arriving from China to show a negative test for Covid-19. In Italy, health officials said they would test those arriving from China as well. They said nearly half of the passengers on two flights from China to Milan were found to have the virus.

It should be taken into account that China predicts COVID peak in January 2023, at least until then such problems can occur, which reduces expectations for the global economy.

 

Data released this Wednesday showed that the Federal Reserve's (Fed’s) aggressive tightening policies have taken a toll on the housing market. The U.S. home sales that haven’t been completed fell this November for the sixth month in a row. The decline was down to the second-lowest level on record. Loan costs have roughly doubled since the beginning of the year, and home sales have been declining for months.

The Fed cannot cut rates yet, as inflation continues to be high. Without further rate hikes, the looming recession in the economy will be exacerbated.

 

Our last forecast for the S&P index predicted that the seasonal factor would lead to market growth. 

The end of the year is often positive for the S&P. This phenomenon is called the Santa Claus rally. The period falls on the last 5 trading days before the New Year and 2 days after the holidays.

As you can see from the latest sessions on the U.S. market, the scenario did not come true. The market is consolidating under the level of last days' flat base and most likely will accelerate the fall in the next sessions. 

 

An additional negative factor for the stock is the move below the 0.236 Fibonacci level, which has acted as support in recent days.

The target of this movement can be the lows of this year for the S&P index. However, this target is quite a big one and it may take much time. Therefore, the medium tem goal can be the local lows of June 2022 of 3650 points on the index. This level is the most obvious within the current decrease.

Stop-loss can be put above the consolidation level of the last days’, which is 3900 points on the index.

 

S&P index is likely to grow:

Take profit –3650 points

Stop-loss – 3900 points

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