S&P 500 Looks Well Positioned for Year-End Rally

“With the last FOMC meeting of the year looming mid-week and a 25-basis point cut nearly fully baked into the market… one has to be cautious in the near term, with the SPX trading nearer to potential resistance than support levels. The big levels to watch in the short term are 6,890, or the October closing high and just above the round 6,900 century mark.”

-Monday Morning Outlook, December 8, 2025

Neither the bulls nor the bears were firmly in control last week, as the Federal Reserve did what was expected, delivering a 25-basis point reduction in the fed funds futures rate. Silver, gold, industrials, and financials were notable winners, while heavily weighted technology stocks declined, most notably on poor earnings reactions from Oracle (ORCL) and Broadcom (AVGO).

Today is the official mid-point of December, and as Rocky White posted here on our website, ends a historically weak seasonal period for the S&P 500 Index (SPX--6,827.41), with the first half of December averaging a -0.07% return using data in the past 50 years (only the second halves of February and September are weaker on average). If the SPX closes below 6,849.09 today, it will be a negative first half of December.

With weak seasonality and the SPX trading just below notable chart resistance from the late-October high, it was not a major surprise that the market labored last week, even with a rate cut, since it was expected by most market participants.

Looking ahead, the second half of December is historically the SPX’s strongest two-week period, higher by 1.30% on average, with positive returns about three-quarters of the time. Perhaps of more interest to bulls is that if the SPX is up 15% or more year-to-date going into the second half of December, it is higher 79% of the time into the end of the year, with returns averaging 1.86%. If the SPX closes at 6,764.00 or higher, this qualifier is met. But depending on today’s close, an average second half of December rally may only push the SPX into the October highs and last week’s highs.

Bears may not go away easily. In the chart below, note that the SPX pulled back about 5% after the rate cut before last week’s cut. The SPX heads into this week below last Wednesday’s rate cut close. And since early December, sellers have surfaced around the October highs.

Finally, since the SPX closed below the bottom rail of a bull channel in mid-November, it has not exactly been clear sailing on smooth waters. Whereas the SPX is above the site where the initial channel breakdown occurred, it has yet to make a bold move higher to get back inside the channel.

It has been a grind for bulls and bears alike for the past month as we head into standard December expiration week, where the biggest “pin” risk in the immediate vicinity of Friday’s close resides at 6,900, the site of last week’s highs.

“The sentiment backdrop tilts in the bulls’ favor, with multi-year highs in short interest on SPX components and…the 10-day SPX components buy (to open) put/call volume ratio rolling over from a multi-month high… A group that could ruin an upside breakout is active investment managers. According to last week’s National Association of Active Investment Manager’s (NAAIM) survey, active investment readers are fully invested. The last time they reported being fully invested was late October, ahead of the 5% slide”

            - Monday Morning Outlook, December 8, 2025

The huge short interest on SPX components has and continues to be one of the biggest sentiment-based arguments for bulls in the context of the SPX hitting new all-time highs. The bigger the short interest, the more future buying power, which can be supportive on pullbacks or deliver short-covering rallies that drive stocks beyond levels most expected.

In order for the next stage of major short covering on a rally, the SPX must move through resistance that has been established around the 6,900-century mark dating back to late October.

In the chart below, you can see that the SPX has benefitted from an increase in call buying relative to put buying in the past few weeks, as is evident by the rollover in the 10-day, buy (to open) put/call volume ratio on SPX components. The direction of this ratio is bullish, but the absolute ratio is quickly approaching levels that have preceded trouble for stocks, implying we are nearing levels of short-term trader optimism that puts the market at risk. We aren’t there yet, but we are nearing those levels.

Moreover, active investment managers according to the weekly National Association of Active Investment Managers (NAAIM) remain fully invested and, as such, this is not a group we can necessarily count on to provide support in the near term.

From a short-term perspective, this bottom lines to the V-rally from the mid-November low may be running out of fuel. Second-half seasonality favors the bulls, but it may be difficult making a convincing move above recent highs by year end.