Bloomberg News

S&P 500’s Loss Dims Hope for Year-End Rally: Technical Analysis

December 15, 2011

Dec. 15 (Bloomberg) -- The decline in the Standard & Poor’s 500 Index this year means there are lower odds the measure will rally during the last two weeks of 2011, if history is any guide, according to Nautilus Capital LLC.

Since 1928, the benchmark index has rallied at year-end 60 percent of the time when it had fallen year to date, compared with 80 percent when it rose, data from Nautilus show. The S&P 500 produced an average gain of 1.3 percent during the last two weeks of the year.

The S&P 500 declined 3.6 percent this year through yesterday amid concern Europe’s debt crisis will slow global economic growth. Its retreat yesterday pushed the index below both its 50-day and 200-day average for the first time since Aug. 1, according to data compiled by Bloomberg. That tends to be the riskiest time to own stocks, said Tom Leveroni, chief market strategist at Nautilus, a Lake Forest, Illinois-based research firm.

“With end of 2011 now only 11 trading days away, many are wondering whether a ‘Santa Claus’ rally can salvage a dismal and volatile year,” Leveroni wrote in a note today. “Though historical odds favor some type of bounce between now and year end, we would not bet on it this year.”

The S&P 500 slumped the first three days of this week as growing funding stress in Europe fueled concern the region is struggling to contain the debt crisis. While it rebounded today, it didn’t exceed the 50-day average.

The last time the gauge sank below both its 50-day and 200- day average, it dropped 15 percent before hitting bottom at this year’s closing low of 1,099.23 on Oct. 3, according to Bloomberg data. A similar slump now would take the measure to 1,030, from yesterday’s close of 1,211.82.

The S&P 500 has spent 24 percent of the time since 1928 trading below both the averages, according to data from Nautilus. During these times, the index fell at an annualized rate of 7.2 percent, compared with a gain of 11.5 percent for the rest of the time, the data show.

--Editors: Nick Baker, Stephen Kleege

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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