Wall Street Kicks Off Holiday-Shortened Week On Upbeat Note
12/21/2009 4:41 PM ET
S&P 500 May Climb 6% on Santa Claus Rally: Technical Analysis
The Standard & Poor’s 500 Index may end the year as much as 6 percent higher if a typical December rally drives the gauge past a key resistance point, according to technical analysis by Bell Direct’s Julia Lee.
The index, which closed yesterday at 1,096.08, has climbed through December in 16 of the past 20 years, said Lee, an equities analyst in Sydney. Further gains this month in what’s sometimes known as a Santa Claus Rally could push the gauge past 1,121, the 50 percent retracement level that Fibonacci analysts identify as a point of significant resistance.
“The 1,121 level is the 50 percent retracement from the high of the bull market in 2007 to the low of the cycle in 2009,” said Lee. “It will be a challenge to break past that, but if it does, my guess is that the index will drift even higher to 1,160. If it doesn’t, we’ll probably just see a sideways movement.”
The S&P 500 had its biggest December gain in 1991, when it rose 11 percent. Its steepest decline was 6 percent in December 2002. The index has posted an annual gain in 14 of the past 20 years.
In technical analysis, a Fibonacci retracement is created by taking two extreme points on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent, according to Investopedia.com.
Once these levels are identified, horizontal lines are drawn and used to identify possible resistance and support levels. If a price breaks through one of the levels, it may signal a move toward the next resistance or support point.
To contact the reporter on this story: Shani Raja in Sydney at email@example.com.
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