Santa Claus Rally Distant as Stocks Struggle

Investing.com — With just over six trading days left in 2024, the Santa Claus rally in stocks is “nowhere in sight,” according to Piper Sandler analysts.

The investment firm’s technical research highlights that U.S. equities are facing headwinds following the Federal Reserve’s interest rate cut and a less dovish outlook for 2025.

Market Performance

Major indices are sharply retreating from their year-to-date highs, with declines ranging from 5% to 10%. However, analysts Craig W. Johnson and Scott K. Smith stated, "with the market’s primary uptrends still intact, we are not giving up on the potential for a Santa Claus rally this year."

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

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

Despite the pullbacks, analysts emphasize that the primary uptrends from October 2023 lows remain intact.

Investment Strategy

They recommend waiting for support confirmation around post-election gaps and Q4 lows before investing in anticipation of a Santa Claus rally into the new year.

Market Indicators

The VIX volatility index, often referred to as the “fear gauge,” surged to a four-month high between 24 and 28. Concurrently, the 10-year U.S. Treasury yield climbed to 4.56%, just below its year-to-date high of 4.75%, viewed as a crucial resistance level.

Sector Performance

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

The bearish sentiment is amplified by the U.S. Dollar Index hitting a two-year high at 108.50, likely pushing towards the 109.50 range. In contrast, commodities are facing pressure, with gold and silver breaking key supports.