The S&P 500 is slowly moving towards the 6,936 support level, with premarket testing it today. Swing traders may need to be cautious of New Year repositioning starting Friday. Market breadth may provide some clarity.
Trading Strategy for Investors
In terms of trading strategy, observe ES behaviour between the low 6,920s and 6,936, then the high 6,950s. Avoid overcommitting to lengthy positions as there might be continued selling of 2025 winners. Avoid getting trapped in stocks showing stabilisation before year-end. Instead, focus on selectivity and quickly realise gains.
Today’s premium stock market analysis is open for review, providing insights similar to those received by Trading Signals and Stock Signals clients. Establishing 6,936 as a firm support and locking in open gains are priorities to avoid being impacted by Friday’s potential stock sell-offs.
Attention should be on leading tickers and sectors, such as XBI, XRT, and XLV. High beta stocks like TSLA, PLTR, and HOOD could also face challenges if Friday brings more than just tax adjustments. It’s advisable to monitor winning sectors and the relative performance of tech stocks, which is currently less encouraging.
The S&P 500 has pulled back to test the 6,936 support level after a very strong final quarter. We saw the index rally over 10% in the last two months of 2025, largely on expectations of Federal Reserve rate cuts in the new year. This test of support is critical as we prepare for the start of 2026 positioning this Friday.
Expectations for the New Year
We should not be surprised to see selling pressure this Friday on stocks that led the 2025 rally. This profit-taking could hit high-flyers like those in technology and retail, including names like TSLA and sectors such as XRT and XBI. For derivative traders, this suggests considering buying short-term puts or selling call spreads on these specific winners to capitalize on a potential pullback.
At the same time, we need to be wary of sharp but brief rallies in stocks that performed poorly throughout 2025. This is often just window dressing and tax-loss selling concluding before the year officially closes. Chasing these moves with call options could be a trap, as the underlying weakness is likely to reassert itself once the calendar turns to January.
Volatility has been unusually low, with the VIX hovering near 13 for much of December 2025, a level we haven’t seen sustained since before the market shifts of the early 2020s. This low reading suggests a degree of complacency in the market, which could quickly unwind. Buying VIX calls for early 2026 could be a relatively inexpensive way to hedge long portfolios against the expected repositioning.
