Weekly Wisdom: Recession Fears Stall Anticipated Santa Rally

Greetings fellow traders and welcome to your December 22nd edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Let’s get to what we’re currently seeing in these crazy markets and what we have our focus on going forward.

Taking a look back on this week, December 19 – 23:

• $SPX saw continued selling carried over from last week to the start of this week. $SPX futures hit a low for the week at 3803 just off the 3800 support we highlighted here last week.
• $SPX made its low for the week Monday evening in the futures market when the Bank of Japan stated they would let benchmark bond yields rise further. The unexpected decision sent Japanese stocks and US and European equity futures lower.
• While $SPX sold off further on Monday, $VVIX spent the day selling off lower as well, giving a positive divergence signal to market participants. We have noted tops this year from negative divergence coming from $VVIX – which is often a great, early signal for market retracements in the other direction.
• As a result, $SPX bounced from 3800 support to a high of 3919 in the futures market, providing some relief to what has otherwise been over a week of straight selling.
• $SPX is now stuck in a range between 3800 support and the 3950 level we broke down from last Thursday.
• $TNX the CBOE 10YR Treasury Yield is off recent lows of 3.40%, rising to a high of 3.70% this week, giving some tightening to financial conditions which have arguably been “easing” since early November.
• Tomorrow on Friday, December 23 we’ll get the November Core PCE Price Index m/m at 8:30 a.m. EST. We’ll also get November new home sales data and the University of Michigan consumer sentiment and inflation expectations at 10:00 a.m. EST.

And here’s what we are eyeing next week, December 26 – 30:

• As stated above, $SPX has broken down from 3950 to put bears back in control, yet found some support and gave a decent bounce off 3800. 3800-3950 is now our active range to be played until the next data catalyst breaks us higher or lower.
• $VVIX gave us a positive divergence signal on Monday as it sold lower along with $SPX – this is now back near lows of the year and bulls should be cautious of a bounce back.
• $VIX is also back down near lows but keeps finding a floor under 20. 19 is the big recent low for $VIX and under 19 would mark the lowest levels since April.
• Should bears stay strong and $SPX lose 3800, support remains roughly every 50 handles lower with $SPX 3700 being a major level in front of year lows.
• Next week is a shortened week with markets closed on Monday, December 26th in observance of Christmas Day 
• On Wednesday, December 28th we’ll get November pending home sales data at 10:00 a.m. EST.
• Thursday, December 29th will bring  weekly unemployment claims data at 8:30 a.m. EST.
• Friday, December 30th we’ll get Chicago PMI data at 9:45 a.m. EST.

Here’s Your Chart of the Week:

via BlackRock

Are markets getting too ahead of themselves predicting rate cuts?  Some strategists are making the point a soft landing and no recession could actually be bad for risk assets, as this will push back any anticipated rate cuts. 

Source: https://twitter.com/WallStJesus/status/1605707536887214082

SPY Daily / Weekly Update:

Bears took back control as $SPX lost 3950 last week. 390 and 3950 remain resistance levels now. SPY has support at 380, 374, 370.

Our year-long topping trend line gives further downside follow through this week. SPY has support in front of year lows at 374, 370, and 360.

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Happy Holidays to you and your families!  Thank you for reading!

-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 12:35pm ET December 22, 2022

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