The ongoing bearish sentiment in the S&P 500 could face further complications as technical indicators suggest potential trouble ahead.
Specifically, the index formed a four-hour death cross on December 24, marking its first such occurrence in five months. This development coincided with a seasonally thin trading period during the holidays, according to an analysis shared by trading expert Trading Shot in a TradingView post on December 31.
This bearish technical indicator, where the 50-day moving average (MA) crosses below the 200-day MA, typically signals short-term market weakness.
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Historically, the last similar death cross occurred on July 29, leading to a brief rally followed by a significant downturn caused by adverse macroeconomic developments. This time, however, the market’s reaction appears different, with a more immediate bearish trend taking hold.
What next for S&P 500 index
While the dreaded pattern signals selling pressure, early signs suggest the decline may have bottomed out. For instance, the analyst observed that the Relative Strength Index (RSI) has begun to rise, forming a potential bullish divergence. Notably, a similar RSI double bottom in August preceded a strong rally after a prior death cross.
TradingShot believes the selling pressure from the December 24 death cross has likely subsided, paving the way for a new bullish leg within the S&P 500’s three-month upward channel. If historical patterns hold, the index could see a typical 7.19% rise from its December 20 low, setting a potential target of 6,200 by late January or early February.
Despite the short-term weakness, the broader trend remains positive, with the S&P 500 staying within a well-defined upward channel.
The expert noted that a breakout to the upside would align with the 6,200 target, supported by improving technical indicators and easing downward momentum.
Analyst take on S&P 500
Indeed, this bullish technical outlook is echoed by some Wall Street analysts who believe the index is poised for further highs in 2025.
According to a Finbold report, Goldman Sachs (NYSE: GS) predicted the S&P 500 will reach 6,500 in 2025, driven by 11% earnings growth and a 5% sales increase. Bank of America (NYSE: BAC) offered a slightly higher target of 6,666, citing 13% earnings growth and favorable U.S. policies.
Oppenheimer (NYSE: OPY) is the most bullish, with Chief Strategist John Stoltzfus projecting a target of 7,100, citing the transformative impact of artificial intelligence.
Not everyone shares this optimism. For instance, economist Henrik Zeberg warned that while new highs are likely, they could precede one of the worst crashes in history.
Away from analysts’ projections, the benchmark faces a challenging start to the new year, failing to replicate the typical ‘Santa Claus rally. This phenomenon, where a rally begins on December 24 and lasts seven trading days, often sets a bullish tone for the year ahead.
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