S&P 500 Analysis: Why Santa May Have Problems Rallying

It is traditionally believed that the Santa Rally occurs at the end of December and the first days of January, but according to many opinions it is acceptable to think that it begins much earlier.

At the beginning of December, the values of the S&P 500 index came close to the highs of the year in the area of 4,611, but have declined to date, forming a number of bearish signs:

→ the candle on November 29 has a long upper shadow — a sign of seller activity;
→ the same can be said about yesterday’s candle;
→ candles on December 1-4 form a bearish engulfing pattern;
→ all of the listed candles form a head-and-shoulders pattern (shown by the letters SHS).

That is, the chart indicates activation of sellers near the yearly high — and this is a problem that can affect the so-called Santa Claus rally (the active channel, shown in blue, actualizes the theme associated with the rally).

The mentioned signs of increased supply forces give reason to assume that the values of the S&P 500 index may roll back to the lower border of the parallel channel, approximately the psychological level of 4,500, which can work as support. By the way, this level already provided support during the formation of consolidation on November 15-17.

Fundamentally, tomorrow's news (issued at 16:30 GMT+3) from the US labor market could serve as a trigger for a rollback. On the other hand, it is possible that the news will give impetus to the bulls to attack the level of the year's high.

Today's session will be interesting from the point of view of the market's ability to form a rebound from the median line of the blue channel. Price action will indicate current sentiment ahead of important news.