S&P 500: Alarm
Jingle Bell Alarm
This is an out of cycle note— the regular opening month letter will be issued on Sunday.\
At the close of regular trading hours today Dec 18, all three risk-off criteria were triggered following the S&P 500’s -2.95% daily decline. This is the fifth time the risk-off alarm has gone off this year.
On Sunday the introductory note read “Although caution is higher heading into next week than at any point in the past month, the outlook still leans bullish.”— conditions under Navigating The Short Term marked the significant of monitoring the 6000 level on the S&P 500. The stance quickly becomes one of caution into year end.
Risk Off Criteria - 3/3
At the close of trading Tuesday December 18— all three risk off criteria— short term trend, breadth, and momentum are flashing the alarm bell.
The Short Term Trend— price relative to the 20-day exponential moving average
Breadth— the number of stocks making new highs vs new lows across NYSE & Nasdaq markets, middle panel “Net New Highs”
Momentum— measured using the Percentage Price Oscillator, lower panel
Risk-Off Signal History
The chart below highlights the S&P 500 over the past three years, where vertical lines mark periods when all three risk criteria were active signalling risk. This combination has consistently signaled meaningful market declines.
In the past three years, these criteria have triggered a total of 13 times including today. The results from 2024 have been difficult to navigate due to the duration of the decline being short, and the magnitude being relatively shallow.
Navigating The Short Term
The psychological and technical significant of the 6000 level was highlighted on Sunday as the short term moving average aligned at this level to begin the week. Price declined immediately into the marked 5875 support, marking the previous all time high range.
The key levels to monitor into Sunday’s note:
6000 — Recapturing 6000 will quickly erase return the favor to bull participants
5875 — A previous all-time high range, potential support candidate
5765 — late September all-time high range + consolidation range prior to next series breakout— the immediate support level if the index closes below 5875
5650 — low range of consolidation
With all three risk-off signals triggered— I will be reviewing short term hedges against my bullish positioning into the weekend.
Disclaimer: The information in this article is for informational purposes only and should not be considered financial advice or a recommendation for any investment. I am not a financial advisor, and the content is not intended to serve as financial advice. It is solely intended to journal thought, ignite more thought and discussion.