Can Santa Crash This Party? (by Xerxes)

By -

There are four trading days left in 2022. This past week showed us two things. First, resistance is still in play as we rejected the 50 day EMA very nicely on Friday. Second, Friday also showed us that support refuses to yield as we finish the day with a hardy 60 point bounce on SPX. The result is a long wick doji pattern on the weekly chart, which is rather neutral. With lighter volumes we tend to see much more volatile moves and perhaps that is what we were seeing this week. Who knows?

Regardless, the continued support at 3800 is important to consider for the following week. We could see a rally with some choppy swings or we could see a volatile but controlled descent. Either way, it is a bit of a crapshoot. I can’t say for sure which direction to expect. I did provide expected zones should we move in either direction.

On weekly chart, circled in purple is the zone I most expect. We could get a choppy move up over first two days with a drop back down in next two days to close between 3850-3880. The Second scenario I am prepared for (and hoping for) is to drop and hang out in the zone circled in black. This would be the controlled descent I referenced earlier. This would also get really close to my year end prediction of 3780 that I presented in late November. The last scenario is a light volume but significant move up to the orange circled zone. This would truly suck as it is possible to rally this high yet stay within a bearish technical resistance as we’ve seemed to manage since June. This would be a craptastic end to this year. But I don’t think the resistance is gone, which is why this is my least likely expected scenario. Note that there is 1 more scenario where we drop to the 200 week ema near 3665, but I think this is rather unlikely so discussing this scenario borders on bear porn.

On the daily chart, we can see a little more clearly the zones I mentioned on the weekly chart. The bullish potential for a rally is signified in the long wicks for the past few days beneath 3800. I think a swift drop to the red zone is unlikely as this would completely ignore the obvious supportive buying going on there. I do think, however, that the choppy descent into this blue highlighted zone for 3 days would yield to a 4th day rollover to close near the lower end of this zone.

From the bullish perspective, we could see a rally into the green zone up to 3920 where I would expect a hard rejection. The last scenario is a rally up into the yellow zone, but this would also need to negate the prior support at that area, which I would expect to now act as resistance. A break above there would be significant and would start the year off on a bullish ascent. I don’t expect this to happen, but need to acknowledge the potential.

And there we have it. Lots of ifs and maybes. Given the light volume, we may see quick jumps or drops into the extreme ends of these zones, but I would then expect reversals back into these zones, so if you are quick it may be worth selling some weekly premiums as these move into those extreme zones. The actually trades will depend on you. I want to wish you all a Merry Christmas and best of luck to all this coming week.