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.
I’m not thrilled with the short-term risk/reward with SPX at 6100 ahead of Friday’s Jobs report and the economic data over the next couple of weeks, with CPI on deck for 12/11 and PMI to follow ahead of the December FOMC rate decision on 12/18. While there’s been no evidence of price weakness, the US Equity market has shown negative market breadth for three of the last four days of this trading week.
Today’s trading brought about mild losses for SPX and QQQ, though no important breaks of support. Six out of 11 sectors fell in trading, with 1% losses out of Technology, Healthcare, and Materials. Overall, given the positioning data entering a time of potentially market-moving economic reports during a time of cross-asset volatility, we very well could be entering the so-called “Zone of Hesitation” that Tom Lee mentioned.
Initially the area of 6017-6020 looks important, and under that first support “opens the door” for a potential slide to approximately 5950. That should be important, and I’m skeptical that SPX undercuts 5900 in December.
Thus, given the outstanding movement in many sectors leading up to December (Financials, Consumer Discretionary, Industrials, Energy, Comm. Svcs.) and the comeback in Large-cap Tech in the last week, it’s fair to say that the market remains in excellent shape from an intermediate-term breadth perspective. Thus, minor concerns this week regarding negative breadth should prove minor in scope for December, and dips would make SPX technically attractive into December expiration ahead of a run-up into year-end.
For those that utilize counter-trend indicators, it’s important to note that SPY now shows three separate counter-trend measures of exhaustion as of today, Thursday 12/5, that being TD Sequential 13 counts, TD Combo 13 counts, and a completed TD Sell Setup as of yesterday. (See daily SPY chart from Symbolik, below highlighting these DeMark indicators).
This doesn’t have to result in any downward volatility by any means. Yet, counter-trend exhaustion measures were present during early November, mid-October, late August, as well as mid-July which all coincided with minor pullbacks in price. Any decline in the days ahead that makes a daily close “under the close from four periods prior” would suffice to confirm a short-term sell signal for SPY.
However, as shown below, the uptrend remains quite resilient and robust, and my expectations are that any selling should prove short-lived. Weakness in the December FOMC should be buyable.
S&P 500 SPDR * SPY
US Dollar is breaking its 2.5-month uptrend
The recent pullback in Treasury yields has coincided nearly directly with weakness in the US Dollar.
Interestingly enough, both DXY and TNX weakness happened in the early part of November when many in the media were telling us how President-elect Trump’s policies would cause both to escalate higher.
This seems to have been a classic case of “buy the rumor, sell the news,” and both DXY and TNX are likely to trend lower from December into January.
DXY looks likely to drop to 103.50 initially but might fall further into early 2025 before rebounding.
USDJPY should be watched carefully now ahead of the BOJ meeting as the Japanese swaps market has priced in about a 70% chance of a rate hike at the coming meeting. Such a move should result in Yen Strength, resulting in a continuation of the recent pullback in USDJPY.
Overall, I like being long EURUSD, GBPUSD, and long the Yen, expecting USDJPY to move lower into January.
This could allow for a bounce in Emerging markets, and there’s already been some evidence of India and Mexico trying to bottom out in the short run.
U.S. Dollar Index
Healthcare could offer an opportunity in early 2025 but still looks early after Thursday’s weakness
Healthcare has proven to be quite disappointing in recent months, and it’s been a testament to other SPX sectors doing well that SPX itself has held up given such huge underperformance out of the 2nd largest sector within SPX. (Healthcare represents about 12.5% of SPX.)
Many stocks within the Biotech and Pharmaceutical sectors have been very hard hit since September, and even the Medical Device ETF (IHI -0.11% ) and the SPDR S&P Health Care Services ETF (XHS 0.40% ) have been faltering lately.
At the present time, both Medical Devices and Healthcare Services look better than the Biotech and Pharmaceutical sub-sectors within Healthcare.
Thursday’s pullback to multi-day lows for Equal-weighted Healthcare ETF (RYH) and for XLV 0.01% keeps this sector under pressure for now, making it early to buy (Not shown).
Moreover, the chart below of RSPH relative to Equal-weighted SPX (RSP 0.94% ) has moved to multi-day lows after just a minimal bounce and looks set to drop to new monthly lows in the next few trading days.
Overall, while many sectors are snapping back as mean reversion takes shape, Healthcare is not one of them just yet. It looks early to try to buy dips in Healthcare, and investors should postpone trying to time weakness until evidence of stabilization begins.
RSPH/RSP
Emerging markets have started to bounce as US Dollar decline begins a second leg lower
One interesting phenomenon concerns the degree of stabilization in some of the harder hit areas within the Emerging markets Equities space.
Many of the currencies have begun to stabilize this past week, and now, Equity indices of countries like Mexico and India have also begun to stabilize.
EEM has risen to multi-day highs and looks appealing for a further bounce at a time when the US Dollar’s weakness should begin to accelerate into year-end.
I like owning INDA 0.29% for India’s Equity market and EWW 0.27% for Mexico’s Equity market and would grow more open to owning China if/when FXI 0.08% can exceed $31.50. Given the political turmoil right now, South Korea’s EWY 1.13% still looks a bit early to consider, technically speaking.
The chart of EEM below looks likely to rally to $44.50, lining up with a meaningful trendline along with an area near prior late October lows.
iShares MSCI Emerging Index Fund
