Is it right to buy Energy for a bounce? Equal-weighted Energy has trended up sharply over the last couple weeks, but these gains remain part of a lengthy downtrend in the relative picture of Energy to SPX since October 2023. While investors heard reports of possible China-led supply shock events like banning US-sanctioned Tankers from Shandong Port, the entry for most sanctioned Oil which might drive up shipping costs (1.74 million barrels per day from Iran, Russia, and Venezuela in the last year) However, Crude failed to lift in trading and closed down negative. Overall, my feeling is that Energy likely does outperform in Q1 before heading lower, but at current levels, it's likely that Crude, and by extension, Energy might require a "breather" before being able to push higher. This downtrend shown below is a daily chart of Equal-weighted Energy (RYE) in ratio form to the Equal-weighted SPX (RSP 0.22% )

Small-caps have not responded positively to the recent backing up in rates and the last couple days of weakness have suggested a brief move down to new monthly lows might be needed before the Russell 2000 ETF (IWM -0.52% ) gets to support. I'll discuss this in tonights report but it appears still early to thinking this is bottoming

Do Bond yields really impact Equities? The relationship seems to have fallen apart in recent months, despite the steep rise in Bond market yields topping the list of current market narratives given the now Consensus view that President elect Trump's Tariffs will cause inflation to soar. Whether it be term premiums at 10 year highs, additional Treasury supply, Scott Bessant's plans on issuing longer-term debt, economic growth exceeding expectations, or the fact that ISM has been spiking lately, Yields have been escalating, but yet it's difficult to say how much of this is truly warranted or can be rationally explained. Furthermore, it's never the level of the yields that matters, but the velocity of the move. The rolling coefficient of changes in 10-year yields to explain changes in SPX earnings yields has fallen apart over the last year which goes a long way towards discrediting the narrative that higher bond yields are always hurtful to stocks.

S&P Futures have started to stabilize ahead of today's FOMC minutes, but we see that S&P has carved out 5 waves lower from yesterday's intra-day highs. Thus, while a bounce is likely in short-term, (meaning 1 day) this doesn't make a convincing case of a bottom and points to the possibility of SPX testing and breaking 5829 into next week(^SPX -0.03%  ES 1.14% _F ) While both AAPL and NVDA should find firm footing at support on a bit further weakness into Friday/Monday, today's deterioration has likely given some good indication that S&P could actually temporarily break 5829 to the downside temporarily before rebounding into late Jan- I suspect a temporary bounce attempt to 5979-85 for ES 1.14% _F & this translates to 5940-50 for ^SPX -0.03%  cash. I am skeptical that 6021 is exceeded post FOMC minutes, this would be a positive "game-changer" but appears quite early to me