Growth has begun to turn back higher vs. Value, but SPX looks to be at resistance

Near-term trends remain bullish from last week in US Equities, but the larger trend has definitely shown some stalling out since mid-December, and this larger churning still really hasn’t been resolved.  Furthermore, SPX and QQQ are now nearing prior peaks from late December, which I expect might represent strong overhead resistance.  The cycle for 1^st Quarter in SPX and DJIA looks mixed, and US Treasury yields and US Dollar have not yet turned back lower, which makes this recent bounce on lackluster breadth for SPX somewhat suspect.   I’m on alert for any weakness in the days ahead, but a possible peak might materialize near the end of January

Overall, recent price action has proven constructive in recent days, yet much different than what was seen back in November-December 2023.  Former mean reversion gains in sectors like Financials, Healthcare and Discretionary have slowed lately, while Technology has begun to reassert itself.

Despite many investors pointing out the underperformance in AAPL, it’s worthwhile to note how robust gains have been in issues like NVDA 6.25% , and META 0.27%  (Two of Tom Lee’s “Super Granny Shot” stocks)

The minor bounce from last week, has largely still been trending within a neutral range-bound situation from mid-December.  I’m on alert for evidence of US Dollar and Treasury yields turning down that would help add some “gasoline to the fire” for Equities in the balance of January.  Thus far, this hasn’t materialized.  Now, SPX and QQQ are nearing important near-term technical resistance levels to gains and Yields remain in minor uptrends over the past week.

Meanwhile commodities and Emerging markets have proven less than stellar in recent weeks, and the breakdown in Copper looks to have directly followed suit to recent underperformance in Chinese Equities. 

Given the combination of cycle composites, seasonality trends, and breadth levels, the time which might prove to be challenging could be February-May of this year.  Any decline into the end of 1^st Quarter could provide opportunity for investors given the bullish intermediate-term breadth.

At present, I’m inclined to think that our recent bounce this week might be nearing strong resistance, as negative breadth divergence has been prominent over the past couple weeks.  Furthermore, given the correlation with Treasuries, Equities have not seen their recent bounce also coinciding with a similar decline in Yields nor the US Dollar.    Bottom line, 4800 might prove to be a big level for SPX.

S&P 500 Index

A couple key factors argue for a range-bound Q1 ahead of the larger rally back to new highs: (reposting from yesterday)

1. Seasonality for Election years typically has shown a lackluster, choppy Q1 before prices push higher into August/September.
2. Sentiment has grown more optimistic lately on the retail side based on traditional polls like AAII, Investors Intelligence and Fear and Greed
3. Cycles show volatility and back and forth trading before turning up in a more symmetrical manner after Q1 is complete
4. The cycle composite for Treasury yields looks to hold up until March before turning down sharply into August.  I expect this might prove to be one of the better times for investors this year, along the period directly following the US Election
5. Breadth has been waning a bit from an extended state lately and MACD has rolled over on charts of McClellan’s Summation Index following the push in SPX above 90% in percentage stocks > 50-day moving average
6. DeMark-based exhaustion is present on daily and weekly charts of SPX

Growth turning back up vs. Value

One recent interesting development over the past few weeks is the extent to which Technology has begun to snap back following its underperformance vs. the broader market from late last year.

Small-cap, Mid-cap and Large-Cap Growth underperformed Value during the final couple months of 2023, supported by better performance out of Financials and Healthcare than Technology.

Now, given the surge in stocks like AMD 2.41% , META 0.27% , NVDA 6.25% , MSFT 1.80% , ANET -0.02% , and ADBE 0.87% , among others, we’ve seen Technology make a steady come back this past week.   (Note that my note earlier in the week showed Equal-weighted Technology having pulled back to trendline support vs. SPX)  This is a bullish sign for markets in the short run, as well as a bullish sign for Growth.

While Large-cap growth fared much better than Value last year, compared to Small and Mid-cap growth, all of these have begun to slowly but surely begin to turn back higher.

This will be something to watch carefully in the weeks ahead, as it’s expected that Yields might have a larger bounce in February/March before the downturn into late Summer this year.

S&P 400 Growth Index / S&P 400 Value Index

Equal-weighted SPY has begun to lag SPY again to kick off the year, as Technology has managed to come back…But for how long?

As might be expected with Technology roaring back this past week, SPY has been outperforming the Equal-weighted S&P 500 ETF, (RSP 0.04% ) since early January.

The ratio of RSP to SPY showed a big breakout in its downtrend last November as sectors like Healthcare, Financials and Discretionary began to show relative strength.   This RSP strength illustrated the broadening out in the larger market, and RSP rallied up quicker than SPY into year-end.

However, over the past week, the opposite has happened.  The ability of Technology vs. SPX to have held key trendline support and bounced, while the recent outperforming sectors like Healthcare and Financials look to be up near resistance.

NVDA 6.25%  , AMD 2.41% , FTNT 0.19% , ANET -0.02% , and ADSK 0.71%  are all higher by more than 5% over the last week.   However, SPY along with QQQ are now approaching former peaks, and some stalling out looks possible over the next week.

I’ll monitor this chart starting to turn higher again, as the intermediate-term chart is clearly quite bullish (as was shown in recent weeks) given the weekly breakout of RSP to SPY. 

RSP / SPY

SPX Cycle composite looks negative in February and potentially lower into May expiration

As shown below, given the resilience of December 2023, the selloff in risk assets looks to have shifted its phasing a bit, and could bring about weakness into February of this year, with a secondary dip into May.

I feel that 1/27-1/29 should have lots of importance given that this represents a 90 and 180 day period from former October 2023 lows as well as late July 2023 highs, and this period also coincides with the US Treasury supply announcement.

The fact that this cycle turns down right away just as growth has begun to come back and prices have pushed up to former December 2023 peaks looks to be important technically and makes these areas more likely to represent serious resistance in the short run. (SPX 4793-4800, and QQQ-411-412)

I’ll monitor price action in the days ahead, but any break of SPX 4682 would make this scenario a lot more plausible, and likely result in Technology along with Healthcare and Financials start to weaken.  Moreover, this would likely create a choppy January, suggesting that rallies into end of January might also represent a turning point for SPX in the weeks ahead.

While not shown below, my Treasury yield cycle composite seems to show yields bottoming by end of january and turning up sharply into March before a very serious decline into August.  This would directly line up with the possibility of SPX weakening in February as interest rates push higher.

At present, it’s worth highlighting that despite the weekly SPX, and DJIA cycle being quite bullish this year, the first Quarter in 2024 does show the potential for weakness and this directly coincides with DeMark indicators, bullish sentiment having gotten too extreme, and bearish 1Q seasonality trends during Election years.

S&P 500