Equity trends from August remain bullish, and SPX has neared the upper edge of its four-month channel resistance while the NASDAQ 100 index has just pushed back to new all-time highs. Treasury yields and the US Dollar have both begun to wobble lately as December has gotten underway, but their sudden trend reversals have had scant negative effects on the current appetite for US Equities. Thus far, no evidence of consolidation has played out which lines up with cycle projections and lackluster breadth since September. Overall, while Sentiment, cycles, and DeMark signals, along with lackluster Technology participation, made SPX seem like a risky bet following its 15% rally in 15 weeks from August lows, there simply hasn’t been any evidence of price weakness. As the saying goes, it remains difficult to bet against uptrends in December. While I expect some consolidation in SPX before the price gets above 6100, it could be limited to 5950 given the recent breakout in stocks like AAPL, which are important to SPX and QQQ. Thus, for those looking, the timetable for a possible near-term consolidation could happen from 12/5 into December expiration before an end-of-year rally.
No change in thinking, as US Equity markets continue to be dominated by Technology while the rest of the market stagnates. Note, this is largely the opposite of what occurred from mid-July into early November.
However, breadth levels remain healthy overall, even if short-term breadth gauges have disappointed this past week. Thus, those attempting to make comparisons to 2021 are dealing with a much stronger Equity “tape” than what happened a few years ago.
Overall, my expectations are for SPX and QQQ to likely show some minor stalling out by the end of the week, which could happen Thursday or Friday of this week. Thereafter, my work suggests some backing and filling might happen to a small degree into 12/20 before the start of a pushback higher.
I’ll repeat yesterday’s comments for emphasis: Thus, it remains an unusual environment for “the market” in the short run. Ordinarily, a move back to new highs for Equities is something to embrace, and it is. However, when indices are nearing the highs of their respective trend channels, and breadth turns negative, then it’s often a time to pay attention. Similar to yesterday’s thoughts, it will be right to stick with this uptrend until proven otherwise, given no evidence of any technical deterioration in one of the most bullish seasonal times of the year.”
As seen below, SPX is just below 6100 and the upper edge of this trend channel, while RSI has moved back to overbought territory. While this (in and of itself) is never a reason to turn bearish, it will be important to keep abreast of short-term market breadth gauges. As has been reported, this past week’s breadth has been horrible. Yet the larger breadth picture is fine.
The bottom line is that a mild pullback to 6000 or even 5975 is certainly possible in the next two weeks. Yet, given the constructive nature of both AAPL -0.44% and NVDA 0.53% , I find it difficult to make more of any selloff despite the uptick in cross-asset volatility and geopolitical disturbances.
S&P 500 Index
Treasury yields look to still have a ways to go into mid-December
The recent pullback in Treasury yields seems to have turned the so-called Trump Trade” narrative on inflation right on its head.
Following the volatile ISM report on Wednesday, bond yields managed to give up all of their earlier bounce on the disappointing ISM report, which proved to be well below the lowest forecasts. Without delving into Economics, it’s simply proper to point out that the chances of a December rate cut are continuing to surge higher by the day, as recent economic data has seemingly disappointed a bit in the last week. Moreover, former Fed Governor Waller’s speech also resulted in Swaps pricing boosting rate cut probabilities up to 76% (recall this was nearly half this amount a few weeks ago ahead of Waller’s speech).
Overall, Wednesday’s worse than expected ISM report (“bad” economic news) resulted in TNX giving up all the early morning bounce, along with Equities rallying sharply. TNX’s near-term technicals suggest that further declines are likely to test and break recent weekly lows.
Daily TNX charts below show some brief stabilization near the 38.2% Fibonacci level of the prior Sept-Nov rally in bond yields. However, TNX is headed lower in my view and likely gets down to 4.06% before a possible bounce. Ultimately, bond yields are headed lower into 2025, and I expect a test and undercut of Sept lows at 3.60%.
US Government Bonds 10 YR Yield
Small-caps stalled out at a near-exact 3 year anniversary of 2021 peaks
While the prospects of Small-caps have improved heading into next year, the area near $244 proved yet again to be important near-term resistance for IWM 0.63% the Ishares Russell 2000 ETF.
For those that recall the broad-based market peak of 2021 in November, it’s worth recalling that IWM 0.63% peaked out on 11/8/24 at $244.46.
Interestingly enough, following its decline and subsequent rebound, IWM managed to stall out again at a near exact three-year anniversary of the same price level. Former legendary technicians like W.D. Gann often discussed important anniversaries in time which could result in price finding resistance at a similar level upon returning to a prominent point.
Bottom line, I don’t suspect this stalling out is all that bearish for IWM. However, it could experience some further “backing and filling” over the next couple weeks before the rally up to challenge and exceed $244 gets underway.
I like IWM’s chances of turning back higher during the final week of December into January. However, in the short run, one can’t rule out possible weaknesses to 233-6, which would represent a very attractive opportunity, technically speaking.
iShares Russell 2000 ETF
Equal-weighted Technology’s relative attractiveness has improved this week
Technology’s recent outperformance has proven bullish to the charts of Technology vs. SPX when viewing both in Equal-weighted terms (RSPT -0.04% vs. RSP 0.86% )
This week’s surge in large-cap Tech has resulted in the entire group achieving a minor technical breakout vs. the S&P, which looks to continue in the weeks to come.
Thus, while the bigger picture for “Tech” looked a bit neutral over the last few months (and this has not changed), the shorter-term view should see a continued push-up in Technology to the detriment of Cyclicals.
Overall, Technology’s demise has been greatly exaggerated. I’ll review this sector again for my Annual Technical outlook for 2025, but this minor breakout does look to be an encouraging development following the recent underperformance in NVDA 0.53% and many Semiconductor names.
RSPT/RSP
Cryptocurrency rally has gotten jump-started again by the SEC appointment of Atkins
Today’s SEC chair appointment of Paul Atkins by President-elect Trump has resulted in Crypto markets turning up quite sharply today. Atkins is widely considered to be one of the more influential GOP financial regulation insiders, and Bloomberg reports that if confirmed, he’s expected to “Whittle away at regulations and levy lower penalties for violations.”
BTCUSD is higher by about 2500 from yesterday’s close, while the larger move is happening in Ethereum, both on an absolute and also relative basis to Bitcoin.
While Bitcoin has fallen in relative terms to the broader cryptocurrency space in recent weeks, Ethereum has been gaining ground. Today’s move lifts ETHUSD up to May 2024 peaks but also is helping ETH to break out of a larger consolidation downtrend which has held since Nov 2021. I suspect that this should lead ETHUSD to challenge 4867, and there’s been sufficient short-term relative strength improvement to favor ETH over BTC in the short run.
Overall, three important takeaways for Crypto technically:
- Bitcoin’s relative strength vs. the broader cryptocurrency space has been declining now for the last few weeks. The break of Bitcoin’s “dominance chart” which measures its market capitalization, has officially violated a two-year uptrend, which looks meaningful. Thus, while Bitcoin does look to be showing an absolute breakout, and might rally to $111k, other Alt-coins are doing even better and are outperforming.
- Ethereum looks to be strengthening on an absolute and relative basis vs. Bitcoin
- Sean Farrell and Team have mentioned the alt-coin rally in recent notes, and it has now been strong enough to lead to a test.
Overall, I’ll discuss some key takeaways for 2025 for both Bitcoin and Ethereum in my Annual Technical outlook, but in the near term, Wednesday’s rally looks encouraging for further upside in the next 1-2 weeks.
Ethereum
