AI Stocks Weakness Could Spoil this Year’s Santa Rally 1 Grab this chartGrab this chart 52 As December begins, traders worldwide are dusting off the same old question: Will we get a Santa Claus rally this year?But 2025’s setup looks a little different. The market’s cheer seems to depend heavily on whether AI-related stocks can keep delivering miracles—and lately, the charts are suggesting they may be running out of steam.When Tech Sneezes, the Market Catches a ColdA quick look across U.S. equity futures shows a revealing pattern. The E-mini NASDAQ 100 Futures (NQ), home to most AI and semiconductor giants, has posted a significantly lower monthly low compared to the prior month. Meanwhile, the E-mini S&P 500 Futures (ES) declined much less, hinting at relative resilience, but also possible lagging weakness. This divergence—NQ leading down while ES holds up—is a subtle warning. When the market’s growth engine (tech) loses traction, broader indices often follow with a delay. That’s the tension December traders are staring at: are we seeing the early signs of exhaustion before the holidays, or just a healthy pause?Bearish Divergences Whisper “Caution”The technicals are backing that cautious tone.On the ES chart, the Commodity Channel Index (CCI) has been carving lower highs even as prices printed higher highs. This is a textbook bearish divergence, often an early sign that bullish momentum is fading.The MACD histogram echoes the same message: momentum has been contracting through November despite new price highs, suggesting that underlying strength is eroding. Such divergences don’t predict direction on their own, but they do raise the probability of a short-term correction—or at least a choppy path into year-end.The Price Map: Three Levels that Could Define DecemberLet’s outline the key technical zones traders are watching: 6,525.00: the prior monthly low—this is the first line of defense for the Santa Rally narrative. A break below this level would likely shift sentiment fast, especially if NQ continues under pressure. 6,239.50: the floor of a relevant UFO (UnFilled Orders) support zone. If ES dips below the prior low, this zone may become a “bear trap.” Many traders might short aggressively once 6,525.00 gives way, but those unfilled buy orders could absorb supply and trigger a sharp bounce. If the rally emerges from here, Santa might still make his visit. 4,430.50: a deeper UFO support cluster roughly 35% below current prices. If price were to cut through 6,239.50 and stay below it, the market would be entering a different regime altogether—likely accompanied by broken trendlines, volatility spikes, and a more defensive tone. Reading Between the Lines: What the Divergence MeansHistorically, the Santa Rally is powered by optimism, lighter volumes, and portfolio rebalancing. But this time, AI and semiconductor names—the champions of the current bull leg—are leading weakness.That doesn’t mean doom; it means fragility.The ES market may still rebound, but it’s doing so under reduced participation from the very sectors that drove prior gains.Sizing the Trade Without Crossing the LineFor traders eyeing this setup through ES (E-mini S&P 500 futures) or MES (Micro E-mini S&P 500) futures, here’s a compliant, educational way to think about risk and position sizing: Identify the Setup Zone: e.g., around 6,525.00 as potential demand, or below 6,239.50 as short-term breakdown. Define Your Stop: the level where the technical picture is invalidated. Set a Dollar Risk Limit: for instance, risking 1% of total account equity. Derive Position Size: Divide your dollar risk by the price distance between entry and stop (converted into points). Then choose between the standard E-mini (ES) or Micro E-mini (MES) to match your risk tolerance and account size. This framework lets traders adapt leverage responsibly—without needing the specific contract specs or margin figures, which vary by broker and time.Risk Management: December Can Be a TrapDecember is famous for emotional trading. The combination of holiday expectations, thinner liquidity, and year-end positioning can turn routine pullbacks into exaggerated moves.That’s why focusing on risk before reward is critical.The UFO support levels serve as reference zones where institutional activity might reappear, but they’re not guarantees. Managing stops, scaling out partial profits, and staying flexible matters more than trying to guess the market’s next headline.ES and MES: Same Story, Different ScaleThe Micro E-mini (MES) contract is a smaller version of the E-mini (ES), designed for traders who want the same price exposure but with lower notional size.Both track the same index, tick for tick.For traders exploring this December setup, the MES allows participation while controlling exposure more granularly—especially useful if volatility picks up and margin requirements shift.Key Contracts Specs and Margins: E-mini S&P 500 Futures (ES) with a point value = $50 per point. Micro E-mini S&P 500 Futures (MES) with a point value = $5 per point. As of the current date, the margin requirements for E-mini S&P 500 Futures and for the Micro E-mini S&P 500 Futures are approximately $22,400 and $2,240 per contract respectively. Always verify the latest margin schedules and specifications directly with your broker or the exchange before entering trades, as those details update regularly and depend on market conditions.Santa’s Setup: Scenarios to Watch Scenario A — Santa Delivers: Price tests or slightly breaks the 6,525.00 low, finds support near 6,239.5, and rebounds into late December. Bearish divergences resolve sideways, and risk assets stabilize. Scenario B — The Grinch Arrives: The 6,239.50 zone fails to hold, breaking trendline supports. The market slides toward 4,430.50, shaking off complacent longs and erasing part of the 2024-5 rally. Both paths are technically valid. The difference will come from whether AI-heavy sectors regain strength—or confirm that this bull leg has indeed lost its engine.Educational Takeaway Divergences (CCI and MACD) highlight when momentum and price disagree—a sign of fatigue. Intermarket analysis (ES vs. NQ) reveals where weakness may originate. UFO levels identify potential institutional footprints—where traps or reversals often occur. Discipline and risk control matter more than predicting whether Santa shows up. Final ThoughtWhether December brings gifts or grief may depend less on seasonal hope and more on how traders interpret these divergences.If AI stocks can find footing again, the rally could revive. But if they keep sliding, this might be the year Santa takes a break.When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: tradingview.com/cme/ — This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.General Disclaimer:The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses. Source: https://www.tradingview.com/chart/ES1!/4ULO07WH-AI-Stocks-Weakness-Could-Spoil-this-Year-s-Santa-Rally/