Market Recap: Bears Gain Momentum As New Year Approaches

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Alex Partida

Dec 28th 2022  .  4 min read

Bears Gain Momentum As New Year Approaches

Despite the S&P 500 futures putting up a valiant effort to remain stable throughout the night, the markets showed no real signs of strength. The after-hours and pre-market trading sessions were characterized by a lack of significant buying volume, a reflection of the negative sentiment that has been plaguing the markets.

But when the opening bell sounded, there was a glimmer of hope. The indices soared upwards, fueled by a sudden influx of buying activity. It seemed as though the markets were finally turning a corner.

Unfortunately, this was not to be. The buying frenzy proved to be a mere blip, and the selling pressure resumed with a vengeance. The markets were once again thrown into turmoil, leaving traders to wonder if they will ever see a sustained rally.

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Setting the Trap

Today’s bull trap was set up yesterday when the market showed signs of exhaustion to the downside, as noted in our previous article:

“For the rest of the trading session, the stock market indices struggled to climb back above the Volume Weighted Average Price (VWAP). This type of price action indicates that although the market recovered somewhat in the middle of the day, the overall trend was still bearish. The market was unable to maintain gains and remained below the VWAP, signaling a continuation of the downward trend.”

We noted that the VWAP indicated negative sentiment, despite the otherwise neutral price action. 

As the bell rang and markets rushed higher, the bull trap was set, only to see the markets sell off 50 points. Market participants who were long were forced to sell their positions, causing the market to grind lower. 

Dead cat bounce

During the mid-morning session, markets saw modest buying. At one point, VIX (Volatility Index) showed a +1000 tick to the upside. This bounce in the market was short-lived, as markets rolled over in the afternoon session. 

The rest of the trading day was characterized by bearish indicators, with the market’s inability to break above the volume-weighted average price (VWAP) being the most notable. As the day drew to a close, the S&P 500 futures encountered resistance at VWAP and tumbled an additional 30 points.

This final sell-off during the crucial “power hour” brought the market to the brink of a critical support level. For the past few sessions, the psychological level of 3,800 has managed to hold off another wave of selling. However, with the market showing no signs of strength and the negative sentiment lingering, it remains to be seen whether this key level will hold in the coming sessions.

Market structure: will it hold?

All eyes are on the 3,800 level as a make-or-break point for the market. If this key support level can hold, we may see a rebound back towards the 3,850 or even 3,900 level, keeping the market within its current range. However, if the 3,800 level fails to provide stability, the next target on the downside is the 3,750 level. The market’s ability to hold above or break below this crucial juncture will be closely watched in the coming sessions.

Economic data

The Initial and Continuing Jobless Claims reports for the week will be released tomorrow at 8:30 a.m. Eastern time, and are expected to play a major role in shaping market sentiment for the day. If the numbers in these reports are notable, they could serve as a catalyst for movement in either direction as the markets open for the cash session. Keep a close eye on these reports, as they may provide insight into the current state of the economy and serve as a key indicator of market direction.

Bulls take lashing

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 futures closed down 1.16%, losing 45 points, while the Nasdaq futures closed down 1.21%, declining 132 points. The Dow Jones futures followed, closing down 1.06%, dropping 355 points.