Studies show spending can drive economic activities and influence financial markets. Markets are favorable before a holiday or a long weekend, commonly referred to as Pre-Holiday or long weekend effect.
The Pre-Holiday Effect is the tendency for the stock market to gain on the final trading days before a holiday. Research studies suggest stock market returns during pre-holidays and long weekends are more than regular trading days.
Short-term trading using the Pre-Holiday effect strategy can be profitable for traders. Historical studies suggest that buying the S&P 500 Index one day before Christmas and selling it at year-end have rewarded traders with gains of over 15% in the last 50 years. The Pre-Holiday phenomenon also rewards longer-term investors by enabling them to average in on their long-term investments.
With the above thoughts in mind, let us turn to the short-term daily charts to determine if this will be another profitable Pre-Holiday Effect. An overbought condition accompanied by a bearish negative outside day yesterday (12/20/23) warns of a near-term pullback.
However, an inside day has developed today (12/21/23). An inside day occurs when today’s trading range trades within the intraday high (4,778.01) and low (4,697.82) of the previous day. Historically, this implies a neutral condition where the bulls and bears are dead-locked.
The next few days will help to determine whether the bulls can re-exert their influence in the marketplace. A move above the 12/20/23 intraday high (4,778.01) helps to negate the negative outside day, igniting the next bull rally toward a retest of Jan 2023 high (4,818.64) as early as year-end to early 2024. Setting new record highs also suggests a 2024 projection of 5,110.36 based on the recent 12/11/23 breakout above 4,607.07 or 503.29 points.
The last time a bearish negative outside day and an inside day was on 7/27/23 and 7/28/23. The 8/2/23 gap-down breakdown below 4,528.56 triggered a pullback toward 4,335.31 (8/18/23), as SPX fell 271.76 points or 5.90% from its 7/27/23.
A decline below the 12/20/23 intraday low (4,697.82) confirms the start of consolidation toward initial support at 4,607-4,637 (Mar/Jul 2023 highs and 12/11/23 breakout) and below 4,512-4,547 (Nov 2023 breakout, Dec 2023 lows, and the 38.2% retracement from 10/27-12/20/23 rally) and below 4,422-4,460 (11/14/23 gap-up, 50% retracement, and the 50-day ma), and 4,319-4,361 (Jun 2023 breakout, 11/3/23 gap-up, 200-day ma, and 61.8% retracement).
Happy Holidays!
