(WHAT’S THE MARKET’S NEXT MOVE?)
December 20, 2024
Hello everyone
This will be my final Post for the year. I am taking a well-deserved break and will return in around mid-January. I will keep one eye on the markets, and if I see anything that is worth acting on, I will send out an email. But, for the most part, I will be taking a break from screens and market research.
I want to wish you all a very happy festive season and all the good things for 2025.
The Fed meeting certainly has set the mood for the markets. Investors were disappointed with what Powell said about rate cuts in 2025, that there would probably be fewer than first thought. The markets turned up their nose and smacked every sector – basically throwing a hissy fit because they didn’t get what they wanted. But really, this was a good washout – what you would call a very healthy correction. It had been building for a while. I pointed out in Monday’s Post that the technicals were very bearish, and risk was rising.
So now what?
We can now argue that further downside is possible. You should not be trying to catch a falling knife at this stage. We could see another few weeks of consolidation, sort of like a topping action. Nearby resistance is seen at 5935/45 and 5980/90 (both a 50% retracement from the Dec 6th high at 6100 and the broken bull t-line from August.)
So, what’s possible: eventual downside to that bull t-line from October 2023 (5595/20) but some scope for a few weeks of consolidating as year-end approaches first.
Strategy: too late to sell now. Instead, sell on a close below 5845 (just below support). Stop should be above 5885.
Long-term outlook: further downside is probable to the base of the rising wedge (5595 or so). Rising wedges are viewed as reversal patterns, with a break/close below the base arguing a downside resolution and more major top (for at least a year). We have had an extremely overbought market after the last few years of sharp gains. So, it is important to understand that the potential now for a downside move is increased.
And one more thing in relation to the overbought market. We could see a sub $5000 S&P500 in 2025. It is possible. I have been saying for quite a while now that we would get a correction in 2025. It just started earlier than I had anticipated.
Strategy/position: We could see one more rally to just above $6100. That is where you want to be selling calls on the SPY and/or buying the SDS. (Make sure you have stops in place.) Also, if you want to scale out of any stocks, that is the time you would do it. The market will rest for several months to a year but will come roaring back eventually.
I have already recommended that you sell calls on the precious metals sector. It is possible all sectors will follow the bearish path because the run-up has been so strong over the last couple of years.
After the 2025 year of strong correction, we are likely to begin another rally on to new highs.
Bottom Line: 2025 could be a volatile year.
Cheers
Jacquie
