SPX has now pushed higher for 12 out of the last 14 days, while market breadth has been negative nearly every day this week. While this reflects an admirable comeback in the formerly lagging groups like Technology, Consumer Discretionary, and Communication Services, while most other sectors have fallen in price since late November. I expect that the next two weeks present the optimal period from a cyclical perspective to consolidate some of these recent gains, but until the price makes at least a close at multi-day lows, Equity trends remain bullish, even if it is just a few sectors carrying the load. Treasury yields and the Dollar have both turned down over the past month and trends in both should head lower into year-end while US Equities experience a minor “Blip” lower to alleviate some of the recent overbought conditions before trends head further to the upside. However, the fact that Growth is making a big comeback this month and rate cut expectations are growing based on the Swaps market are both positives, in my view that should reward investors into January.
As discussed in recent days, I’m not thrilled with the short-term risk/reward with SPX at 6100 given the upcoming economic data over the next couple weeks as part of a market with heightened cross-asset volatility.
Looking back since mid-to-late November, only Comm. Svcs, Consumer Discretionary, and Technology are at multi-month highs. (These also, along with Consumer Staples, have been the only sectors that have shown gains in the last week.)
The following sectors are all down between 2-7% from late November peaks based on their Equal-weighted ETFs:
Energy -7%
Utilities -4%
Materials -4%
REITS -4%
Industrials -2%
Healthcare -2%
Financials -2.8%
Note, this doesn’t necessarily make the market vulnerable to losses until these sectors stop moving higher and in particular when Technology starts to roll over. Into next week, any daily close under 6061 will lead SPX down to either 6006, or 5977 initially, and would represent a better area from a risk/reward perspective from where to expect rallies into year-end.
S&P 500 Index
Performance shows a very bifurcated market
As shown below, only four sectors moved higher out of 11 this past week, despite SPX having climbed over the past 12 of 14 trading days.
Technology’s comeback has been impressive and has shown some interesting divergence with the rest of the market in 2024. Following July’s peak, Technology underperformed sharply while the market experienced a broad-based rally based on Financials, Industrials, Communication Services, and Consumer Discretionary.
More recently, Technology has snapped back to life while a majority of sectors have lost ground in the past week. As shown below, seven sectors moved lower in the last week, with notable underperformance out of Utilities, Materials, Energy and Real Estate, each down more than 2%.
That might seem odd for a market which seems to go “straight up”. Yet, as we know, it’s important to take stock of all the moving parts given the size of stocks like AAPL and NVDA within SPX and QQQ.
Overall, I sense a rotation back into Technology is certainly healthy. However, when seven sectors are down more than 1% in the past week, it seems like the “air is getting a bit thin” for SPX during the holiday season.
Those who say it’s been a good market as well as a tough market are both right this December.
Invesco S&P 500 Equal Weight Technologie ETF
Economic data has begun to weaken vs. expectations
As discussed earlier in today’s Flash Insights, interestingly enough, both US Dollar and US Treasury yields have largely moved lower since the US Election. While Friday’s Jobs report seemed to be respectable, along with some solid upward revisions to the past couple of months of data, both the US Dollar and US Treasury yields seemed to be focused on the expected Unemployment rate move to 4.2% vs. 4.1% expected.
The CESIUSD index, shown below, is an index I watch frequently to see how Economic data is doing vs expectations, as it often helps to explain the movement in long-term interest rates. As this chart shows below, the bounce from August into November directly coincided with a period where economic data was doing better than expectations.
TNX also bounced during this period, as might have been expected with data having gotten “Better”. However, this has begun to change in recent weeks, and in the last month, we’ve seen the opposite. CESIUSD index has weakened from 40 to 25 as data has “whiffed” and yields have also pulled back 30 bps from early November. Thus, at a time when the narrative has been that the President-Elect’s policies will “definitely” lead rates and the dollar will be higher, the exact opposite has happened over the last month. The 10-year yield has receded, and the US Dollar has rolled over. The key lesson here is to pay attention to economic data vs expectations along with cycles, sentiment, and trends for 10-year yield movement, not Media narratives.
Overall, recent Swaps pricing now shows an 89% chance of a Rate cut in December. Given that the Feds benchmark rate is more than a Percentage point higher than Core inflation, one can make still make the case that rates should be lowered further.
CESIUSD Index
Crude oil is on the verge of a big breakdown
Following the OPEC+ decision not to postpone raising output more for another 3 months, one would have expected this might lead to at least a brief bounce attempt for WTI and Brent Crude Oil. However, this was interpreted by traders as a worrisome sign about demand and Crude has now fallen to make-or-break support of this existing range of the last few months.
Technically speaking, I remain bearish on the prospects for Crude oil in the months ahead, and expect a breakdown of this three month bearish triangle pattern which could begin next week.
Any daily close under 66.50 would lead down to “at least” 53, if not under 50 temporarily, into early next year. I remain bearish on Energy and this sector remains a Technical underweight. 5 of the biggest SPX Underperformers today (of the top 15 laggards) are all within Energy with greater than 2% declines out of HES, APA, DVN, HAL, FANG, all underperforming sharply. This breakdown in both WTI and Brent Crude might happen next week.
In regards to the three major Energy ETF’s which I track, all three have begun declines in the last week with OIH and XOP being worse than XLE.
The near-term target for OIH is 276, while XOP should fall to 132, and XLE has already reached its initial support area at $91. However, it’s thought that these areas should all be violated in the weeks ahead, resulting in far greater deterioration for Energy stocks. Investors should take note that violations of these levels above put all of these Energy ETFs in a very weak technical position.
Light Crude Oil Futures
UBER is being removed from UPTICKS after this week’s drop
Unfortunately, UBER has failed to bounce after having reached the area near early September lows.
This past week’s trend violation of $67.80 was bearish and it happened on above-average volume.
This makes UBER vulnerable technically to a move down to the mid-$50’s where it might test August lows before showing stabilization.
While the intermediate-term uptrend for UBER 4.77% remains trending higher, last year, a large sideways consolidation pattern was witnessed.
Its peak in October resulted in very strong selling pressure, and volume has been heavier than normal during this distributive period.
Overall, while I might revisit UBER in the months ahead potentially, for now this stock is too weak for comfort, and I am removing it from my technical stock list, UPTICKS.
Uber Technologies
