We are in the holiday trading period. The US stock market, as represented by the S&P 500 futures, is in a strong move up. Point & Figure Charts indicate a potential rally to about 3500. We’ll see. Nevertheless, we have entered the American holiday trading period, which typically runs bullish into year’s end.
With that background in mind, we will still see pullbacks. The market always ebbs and flows; it must breathe. And, it looks like the market may take a breath in the coming days.
As we come into holiday trading, the charts show that the market rally has hit a technically overbought condition. We see this on the weekly chart, with the S&Ps trading at the top of the weekly trend channel and supply line as it makes new, all-time highs, albeit on low volume.
We see the impact of the weekly low volume on the daily chart. Even though new highs were made, the market could not reach the top of the daily trend channel, indicating shortening of the thrust and some weakness. We can also see on the daily that the volume spiked a couple of days ago, and then declined as the market continued rising, suggesting a minor climax to the upside. This is followed by a small daily top reversal. These are conditions that increase the odds for a pullback, even during the holiday trading period.
A shallow pullback would take the market to the daily demand line and horizontal support at around 3115. This is the initial expectation. If the market holds well around this level, we can anticipate another rally. A deeper pullback would take the market down into the next support level around 3085, but this would still allow for a December rally and retain the holiday trading bias. Breaking that level would portend a down move back into the 3025 area. That would be a little more ominous.