Market Recap for Thursday, December 24, 2015
Thursday was a shortened trading session before the Christmas holiday and there was little movement in our major indices and on little volume. Eight of nine sectors moved lower on Thursday, although energy (XLE) was the only space to see much selling. Oil & gas ($DJUSOL) fell over 1%, but recently did hold onto 61.8% Fibonacci retracement support. Take a look:
Short-term, price support resides at recent lows at 500, then 485. So long as 485 holds, a bullish argument can be made that we're in an uptrend. Loss of that support, however, would suggest another test of the August low closer to 430. That could represent a double bottom or possibly a precursor to yet another breakdown and further drop lower. As a shorter-term trader, though, I'm watching support at 485 and expecting that to hold.
Healthcare (XLV) was the only sector to gain on Thursday. Biotechs ($DJUSBT) led this sector with gains Thursday, going against the market grain. I've provided an updated look at the DJUSBT in the Sector/Industry Watch section below.
Pre-Market Action
U.S. futures are lower this morning as many traders will be on vacation throughout the week. Europe is mostly lower and Germany (DAX) is leading the way to the downside. From the following chart, key support resides close to 10500 while potential channel support is closer to 10250. Losing these two support levels would begin to look much more bearish and could enable bears here in the U.S. to gain control of the action. So that's one market I'd continue to pay close attention to across the pond. Check out the visual:
There's very little to trade off of today as there's no economic news or earnings news of note. China's Shanghai index did fall more than 2% overnight, but thus far none of the other major markets around the globe are seeing that type of selling.
Current Outlook
Well, we have a week to go in 2015 and honestly nothing has been settled. The huge selloff back in late summer could be simply a correction or it could be the start of much deeper selling. The answer will be determined by either a closing breakout of 2131 on the S&P 500 or a breakdown beneath those August lows. In the meantime, I'm expecting the back and forth action to frustrate traders on both sides of the aisle as we end 2015 and usher in a fresh new year.
There is a very strong positive correlation between how the stock market performs in January and how it performs the balance of the year. Over the next 30 days or so, I'll provide some stunning facts about the predictive ability of January performance. The old Wall Street adage "as goes January, so goes the year" has a lot of truth in it.
Sector/Industry Watch
Biotechs ($DJUSBT) performed well on Thursday and have been rallying the past two weeks off the hammer at price support near 1800. Unfortunately, the bulls are now approaching several key resistance areas - namely, trendline resistance at the current price and again near 1930. Should both of those levels be cleared, a price resistance zone from 1950-2000 still remains. I suspect we'll fail in this area, but a breakout to print higher highs would most definitely begin to paint a more bullish picture. Here's the chart:
Biotechs are the aggressive component of healthcare so leadership from this group and the breakout discussed above would be a bullish development for our benchmark indices.
Historical Tendencies
While historically the week between Christmas and New Years has been quite bullish, recent history has proven otherwise. For instance, the benchmark S&P 500 has fallen from December 24th's close to December 31 seven times in the past thirteen years. So while I maintain a very bullish stance historically, I do recognize the trend recently has been more neutral. We're about to find out what this week has in store as we close out a 2015 characterized by whipsaw action and sector rotation.
Key Earnings Reports
None
Key Economic Reports
None
Happy trading!
Tom
