Santa Claus rally? BofA says charts suggest a year-end rally in S&P 500

By Senad Karaahmetovic

The closed over 1.5% higher last week, in line with seasonality that shows Thanksgiving week can be a “solid week,” according to Bank of America’s Chief Market Technician.

However, the week after Thanksgiving shows a “lackluster SPX average return,” with the U.S. benchmark index up 52% of the time.

“This serves as “seasonal digestion” after the more bullish week of Thanksgiving and compares to an average SPX return of 0.14% (0.30% median) with the week up 56% of the time for all weeks going back to 1928,” BofA said in a client note.

The historical data also shows the period from Thanksgiving into year-end is “strong and favors a year-end rally.”

“From the closing price of the day before Thanksgiving through the last day of the year, the SPX is up 71% of the time with an average return of 1.49% (1.70% median). Within this period, Christmas Eve through New Year’s Eve is up a greater percentage of the time than Thanksgiving through Christmas Eve, which reflects the Santa Claus rally,” the note added.

In order for the S&P 500 to confirm the recent bullish momentum, the bulls must regain three cyclical bear market resistances, said the note. These include the 40-week MA at 4033, the 2022 downtrend line near 4100, and the August lower high at 4325.28.

“If the SPX continues to struggle with these resistances, holding the 26 and 13-week MAs from 3909 to 3833 is required to suggest a positive change in character for the SPX. If 3900 (breakout point) and 3860-3818 (upside gap) do not hold, it would expose rising 200-week MA at 3646 to downside risk along with the June and October lows at 3636 and 3491, respectively.”

Net-net, BofA reminds the firm’s clients that the S&P 500 is trading at a “key juncture.”

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