Stocks Stage Year-End Rally – What Lies Ahead?

As we enter the final trading day of the year tomorrow, US markets have staged a dramatic rebound in the best day stocks have seen this month. The key technical question as it relates to the S&P 500 index (SPX), is will we be able to sustain a close above 3900 in the last day of trading in 2022? The has been a critical level of horizonal support/resistance and currently we are trading below that level. Options statistics tell us it is a slim chance, with only about a 10% probability of that occurring by close of trading on Friday.

Market participants will also be closely watching 3855 on the SPX tomorrow, as this is the line in the sand for bear market territory relative to the all-time high of the S&P back in January. As of today’s close, we are a little less than 6 points below this key level. If we are able to close above 3855 tomorrow and get out of “technical bear market territory” as we wrap up an ugly year for stocks, it may inject more positive sentiment into the markets entering 2023. If we close in bear market territory tomorrow, there may be a greater risk of another leg lower for stocks as we open up for a new year of trading next Tuesday.