The last couple weeks of the trading year are typically slow, so I try to hold out until mid-December before taking an extended vacation. When I left town shortly after the market close on Dec. 16, the S&P 500 was trading at 3,852; the index closed at 3,839 to end the year on Dec. 30 for about 0.25% of net movement over two weeks.
While I'd love to have enough data to make a snap judgment about the market, all I see is a market needing a catalyst. And unfortunately, I don't see an obvious catalyst.
With the S&P 500 trading beneath its moving averages and the 14-period Relative Strength Index (RSI) sitting well beneath 50, it's easy for me to make a bearish argument. But the S&P 500 broke beneath its 50-day simple moving average (SMA) on Dec. 16 and the bears consistently have failed to keep the selling momentum going.
The index essentially has flat-lined for two weeks. While I don't expect to be a buyer at the open here on Tuesday, I am watching for an indication that supply is drying up under 3,800. Bearish excess under 3,800 and a close above 3,900 likely would be sufficient to squeeze the S&P 500 back up to 4,100.
The Nasdaq Composite has a slightly uglier picture, but again, we're starring at an index that has been trading sideways over a multi-month timeframe. Whether you focus on the three-month channel between 10,300 and 11,500 or the mid-November to mid-December channel between 11,000 and 11,500 is a function of your timeframe. Regardless, we're facing an index that isn't making much progress one way or the other.
I'd love to tell you that I'm entering 2023 with a strong directional bias, but I'm not. Short term, I'm bearish because both the S&P 500 and Nasdaq Composite are trading beneath their 10-day and 21-day exponential moving averages (EMAs). And while both indexes are beneath their longer-term moving averages, the sideways movement over the past few months should have you considering the possibility, no matter how remote, that we're trying to build a base.
