E-mini S&P 500 Index (ES) Futures Technical Analysis – Facing Headwinds Ahead of Monday’s Opening

Ahead of the long Christmas holiday weekend, the March E-mini S&P 500 futures contract ended higher on the hopes that an imminent U.S. fiscal stimulus agreement, a long-awaited Brexit deal, and the vaccine rollout would speed up the economic recovery.

At the close, the index sat just under its all-time high after clawing back a huge loss from earlier in the week. Despite the impressive comeback, investors are facing headwinds because President Trump has not yet signed the stimulus bill. The move cast doubt as to whether the package passed by Congress on Monday would be signed into law and raised the threat of a partial government shutdown.

On Thursday, the last day of trading for the week, March E-mini S&P 500 Index futures settled at 3695.00. That put it down 11.25 for the week or -0.30%.

‘Santa Claus Rally’ Threatened

Stocks have tended to perform well in the last five trading days of December, and the first two of January, a phenomenon known as the Santa Claus rally which has lifted equities in 55 out of 74 years since 1945, according to CFRA Research. This year, the period started on December 24.

This year, worries over a resurgent coronavirus pandemic and upcoming U.S. Senate runoffs in Georgia are clouding the outlook for what has historically been a seasonally strong period for equities.

Daily Technical Analysis

The main trend is down according to the daily swing chart. On Monday, the main trend turned down when sellers took out the previous main bottom at 3620.75. The index also formed a potentially bearish closing price reversal top in the process, but the lack of follow-through to the downside failed to confirm the chart pattern. Furthermore, the price action suggests that the change in trend may have been triggered by sell stops rather than new short-selling.

A trade through 3724.00 will negate the closing price reversal top and signal a resumption of the uptrend. A move through 3596.00 will signal a resumption of the downtrend.

The minor range is 3724.00 to 3596.00. Its 50% level at 3660.00 provided support the last three days of the week.

The second minor range is 3497.25 to 3724.00. This zone stopped the selling at 3596.00 on December 21.

Short-Term Outlook

There are a lot of questions that need to be answered ahead of Monday’s opening. Namely, will Trump sign the fiscal stimulus bill over the weekend? If he fails to do so then investors will have to deal with a possible shutdown. Meanwhile, the new variant of coronavirus is being detected outside of the U.K. Last Monday, this news triggered a steep break. Will we get a repeat performance?

I think all of these questions will have to be answered before we can gain confidence in a Santa Claus rally.

For a look at all of today’s economic events, check out our economic calendar.