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S&P 500 advances as dip buyers re-emerge

It looks like the selling could ease as bears appear exhausted, giving a nice chance to bulls for a short-term rally.

Five days of selling have taken its toll on the market sentiment, but bulls are not giving up and are trying to “buy the dip,” sending the S&P 500 notably higher on Thursday.

Santa rally not coming this year?

Reinspired worries about an extended period of rising interest rates and the possibility of an economic crisis have contributed to a gloomy start to December, an usually bullish month for equities.

Also an interesting read: USD/JPY at critical technical crossroads

In trading on Wednesday, the benchmark S&P 500 recorded its fifth straight day of losses, bringing its losses for the first seven trading days of the month to 3.6%. In addition, according to statistics from Bespoke Investment Group, the Nasdaq experienced its worst first week of December since 1975, with a 4.4% decline.

Last Wednesday’s Powell-fueled risk-on surge, which sent the S&P 500 above its 200-day moving average for the first time since April, has been entirely and substantially reversed.

What was a breakout to the upward is now a failed breakout to the upside. A decreasing moving average, previously suitable for rejection, is now a declining moving average that must be honored. This, combined with five consecutive days of falls in the S&P 500, resets expectations for what Santa may or may not bring at the end of the year.

Labor market starts to deteriorate

Meanwhile, last week, the number of Americans filing initial unemployment claims increased to 230k (from 226k the previous week). Still, it is the steady rise in continuing jobless claims that should cause Americans concern as 1.671 million Americans continue to file for unemployment benefits, the largest since February.

This is the greatest increase in ongoing claims since the COVID lockdowns peaked in June 2020. The ten consecutive weeks of rising continuing claims signal that unemployed Americans have more difficulty obtaining a new job.

The S&P 500 is beginning to decline more strongly, according to Credit Suisse analysts, who now anticipate a break below $3938 to confirm a medium-term peak.

“Big picture, we maintain our base case the October/December has been a bear market rally only,” they added.

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However, today’s rally brought the S&P 500 1% higher and also above the significant short-term resistance, near $3,960. Bulls could dominate the market as long as the index stays above that zone, likely targeting the $4,000 threshold.

It also looks like a double bottom pattern in the 30-minute chart, with the support near $3,915 and the potential of circa 45 points, thus, implying the mentioned $4,000 level

S&P 500 futures daily chart

S&P 500 futures daily chart, source: author´s analysis,

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