Santa Claus appears to have gotten lost on his way to Wall Street.
Though strategists had believed the market was setting up nicely for a holiday-season rally, weakening technical factors have combined with the familiar market worries of European debtand consumer weakness to dampen those hopes.
Wednesday's trading, in which the stock marketdipped a day after a resounding 300-plus point rally on the Dow industrials, just fed into the belief that jolly old St. Nick had few presents to bestow on investors as the year winds down.
"I don't like that there was no follow-through. It's really looking like another one-day wonder," Keith Springer, president of Springer Investment Advisory in Sacramento, Calif., said of this week's action. "Technically this market looks horrendous. There's no demand out there. We're not seeing any pick-up."
Oracleearningsreflected worries that a retrenching consumer will hurt demand for technology products in the year ahead.
The report from the computer bellwether helped spark a mild tailspin Wednesday — but more importantly gave indication that there was little resiliency left in the market as a whipsaw 2011 draws to a close.
"If we don't follow through and have a decent Santa Claus rally — 5, 6, 7 percent by the end of the year — the lows could break," Springer says. "There's just no oomph in this market."
Things don't look any better technically than fundamentally for a Santa Claus rally, generally defined as an up move in the week between Christmas and New Year's.
The Standard & Poor's 500 recently fell below its 50-day moving average, a worrisome sign to technical analysts who think that a break into bear market territory could be in the cards if the major indices can't find a support level soon.
"A failure to move above and hold the 50-day moving average confirms to us that we have already begun to enter the phase of testing the (S&P) October lows near 1100-1074," Mary Ann Bartels, technical research analyst at Bank of America Merrill Lynch, said in a research note. "This pattern is becoming eerily similar to 2008 into 2009."
Bartels sees no reason to believe a rally is approaching, instead focusing on a series of support levels the S&P will have to hold or face even greater losses. Should the index not be able to hold its 200-day moving average — now around the 1240 level — that would confirm, as Springer referenced, that "a test of the lows is underway."
For the market, that could mean an S&P 500 headed to a 935 to 985 range, which would represent a plunge of more than 20 percent into a new bear market. The only good news, according to Bartels' analysis, is that a new bull market will form in the second quarter of 2012.
To be sure, not everyone agrees that the market can't rally before 2011 goes into the books.
Wall Street has shown a willingness to buy — aggressively so — when it appears that concrete steps are taken to address the sovereign debt crisis among nations on the periphery of the European Union. Of course, the problem, as expressed in Wednesday's trading, is that every time a potential solution is introduced, any market momentum is short-lived once the details come to the fore.
"The catalyst right now is the markets are oversold," says Uri Landesman, president of Platinum Partners in New York. "The odds are there will be a European deal that people are more enthusiastic about than they are now."
With only a handful of trading days left, Landesman believes the S&P can hit 1300 by the end of the year and take out the 2011 high of 1353 in a few months.
"Right now, the market is discounting a lot of bad news," he said. "Regression to the mean suggests that the news will be better than the market is expecting."
If the market does rally into the end of the year, though, it will have to do so with little participation from retail investors, who are pulling money from equity funds, as well as many fund managers who reportedly have closed their books for the year.
And even if the market does get a brief jump, 2012promises a challenging set of problems, regardless of where Santa's journey takes him.
"That would be kind of nice," Phil Silverman, managing partner at Kingsview Management in New York, said of a holiday rally. "Looking forward into 2012, when everyone gets back and recognizes that Europe really isn't fixed and things are definitely slowing down, whatever happens in the next two weeks isn't going to make much difference."