Market Update: S&P 500 Retreats

The S&P 500 index retreated on Friday, giving up gains from the initial surge of the 'Santa Claus rally' that began earlier this month.

A BTIG strategist noted that the rally was rejected from the previous support trendline. Although there are still four days left for the Santa Claus rally to yield gains, concerns arise over a potential "bigger January decline."

Currently, only 58% of S&P 500 components are trading above their 200-day moving average (DMA), the weakest reading for the year, breaking a 265-day streak of stronger performance.

Key Insights from Strategist Jonathan Krinsky

• Krinsky mentioned that this downturn is significant but recalls that previous periods with similar patterns were generally bullish in the medium term, meaning there is no definitive signal.
• The S&P 500 is also facing its first weekly sell signal since September, as per the Weekly MACD indicator, indicating a trend change rather than a guaranteed price drop.

Caution in High-Beta Momentum Stocks

High-beta momentum stocks have halted their upward trend, suggesting caution in January, especially considering potential rotations and tax-selling.

Small-Cap Stocks and Their Support

Contrarily, small-cap stocks, represented by the iShares Russell 2000 ETF (NYSE:IWM), are maintaining support around the 220 level. However, the absence of a strong rebound from oversold conditions raises concerns among market watchers.

Options Market and Put/Call Ratio

In the options market, the 20-day moving average of the equity put/call ratio is at its lowest in 18 months, reflecting market complacency, which may pose risks as the new year approaches.

Bond Market Overview

Meanwhile, the bond market is having difficulty retaining support following a tough month. Although some rebalancing may occur toward the year-end, the overall trend for bond prices appears downward, with higher yields expected.

Krinsky warned that a drop below 87 for the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) could trigger a gap-fill around $85, indicating further pressure on bond prices.