Wednesday’s Equity rally proved constructive and went a long way towards suggesting that a rally back to new highs for the major indices should be underway into year-end. While SPX and QQQ barely suffered any of the deterioration as was seen in Equal-weighted indices and many sectors, it appears that DJIA along with SPX should press higher to join NASDAQ at new all-time highs. Despite the counter-trend bounce underway in both TNX as well as DXY, it’s unlikely that mid-November peaks are exceeded before the recent downturn follows through further to finish the year trending down. Overall, while backing and filling is possible next week ahead of the FOMC meeting, today’s CPI data seems to have given markets more confidence in a coming Rate cut next week and is thought to be constructive for risk assets. Until/unless SPX and QQQ break the uptrend from early November (Near 6006), the bull market rally looks back underway after just minor consolidation. Initial technical support for SPX lies near 6017. Movement back above SPX-6100 should allow for a possible rally to 6250-6300 into mid-January ahead of any potential post-Inauguration setback.
It’s a little-known fact that nine of the 11 major sectors were lower in the past week, and seven of 11 sectors have been down in the last month. That might seem at odds with a US stock market at/near all-time highs, but the rebound in Technology in recent weeks has largely happened at the expense of strength in other sectors. The frequently discussed consolidation for US indices resulted in Healthcare, Real Estate, Industrials, Financials, Utilities, Materials and Energy all having lost more than 1.5% in the last week. Six of those seven sectors have also been down over the last month.
Thus, the period since late November has proven to be the polar opposite in some respects of the rotation that happened from July into November. Breadth did recede a bit since the Election, but Technology strength helped to buoy the market which, along with Strength out of the “Magnificent 7” kept bullish uptrends intact despite some sub-par performance out of many of the major sectors.
Going forward, I see this changing as Small-caps, Transports, and some of the Defensive sectors all turn back higher between now and the Inauguration. If we don’t see a meaningful pickup in short-term market breadth between now and mid-January, that would prove to be a warning about the first potential selloff of the year which could take place post Inauguration into February.
As shown below, SPX managed to bottom out right near the critical support trendline, connecting the former peaks from early November near 6017. This will continue to be an important technical level going forward. On the upside, the ability to exceed last week’s highs should result in strength into next week before any possible consolidation. 6100 is key for short-term resistance, as exceeding this should result in Santa’s rally getting started a bit earlier than expected.
S&P 500 Index
Looking back at today’s economic data, given the in-line CPI reading Wednesday that had some promising results out of Owner’s Equivalent Rent and Used cars (both lower than recent months), the FOMC likely feels emboldened towards cutting rates, and the Swaps market now shows the percentage chance as having risen to 98.6%. I expect that the markets feeling more comfortable with the percentages of probable rate cuts also should translate into a healthy market for the time being.
Transportation Stocks look quite attractive after this minor consolidation
As shown below, the DJ Transportation Average looks to have formed a perfect ABC-type consolidation following the breakout to new all-time highs into this year’s US Election.
Following a minor setback down to $17k in DJ Transportation Avg, this looks quite appealing from a risk/reward perspective.
A bottoming and resurgence in Transportation issues should also prove important and bullish for the Industrials sector, which remains Overweight.
Dow Jones Transportation Average Index
Communication Services has moved to new yearly highs relative to SPX
Interestingly enough, the Communication Services sector has begun to “come alive” in recent months, posting the best performance of any of the major 11 sectors through 12/10/24 with returns of +14.04% on a rolling one-month basis.
This sector is also second best over the last three months when viewing returns of Invesco’s Equal-weighted Communication Services sector.
In relative terms to Equal-weighted SPX, this has just pressed up above the peaks from late 2023 to reach the highest levels since mid-2022.
This sector certainly has some momentum right now, and outperformance looks likely between now and mid-January. However, the extent of the weakness over the years makes it difficult to consider this sector an Overweight near its lows. I’ll relay my 2025 rating on Comm. Services on 1/7/25.
Despite being an Equal-weighted sector, RSPC -2.00% has had some excellent 1-month gains out of DIS -4.98% , NFLX 3.61% , META 1.51% and GOOGL -1.01% . Meanwhile many of the traditional media stocks have been laggards, and CMCSA -0.04% , TMUS -3.99% , OMC -3.51% , and NWSA -1.50% have all fallen in the last month.
Thus, this remains a bifurcated sector and one where selectivity remains important.
RSPC/RSP
TSLA’s move to new all-time highs keeps this quite bullish despite being extended
TSLA’s move extended to new all-time highs today, Wednesday, 12/11, and still looks quite promising for 2025.
Despite the overbought weekly RSI reading of 77, its highest reading since 2021, TSLA has not provided any evidence of weakness, nor counter-trend exhaustion just yet to suggest it might peak out.
Many investors might be eager for an update given TSLA’s recent success, but technically the best time for updates is when stocks are falling, not working well.
While TSLA might generate a TD Sell Setup signal with any daily close above Thursday, the weekly charts show exhaustion to be premature by roughly 3-5 weeks. Such a timeframe projected into January arrives at the same possible juncture as when the SPX cycle composite peaks out near the President-elect’s inauguration.
My technicals rarely call for selling stocks that have just pushed into the new all-time high territory. It was thought that $414 might have held on this run-up initially. However, the US stock market seems to be starting to turn back higher and might end the year on a high note.
Thus, it’s difficult to expect meaningful consolidation and/or weakness out of TSLA given its recent surge in momentum.
Upside targets are found at $463 at this point and then $500-$510, which have numerous upside projections. Such a level into mid-January likely would provide some ample consolidation into February, which would make this more attractive from a risk/reward basis.
At present, TSLA remains attractive technically and there doesn’t look to be value in trying to time a peak given the surge in momentum. If/when this stock starts to act poorly, then I’ll properly address the price action.
For now, the biggest takeaway is that all-time highs have been exceeded, which sometimes can present a challenge when formed more than three years ago. My experience is that surpassing a former all-time high can sometimes allow for acceleration, and this looks to be happening with TSLA. Weekly closes will matter more than one daily close at new highs. Thus, a weekly close above $414.50 by this coming Friday should result in $463 being challenged with an outside chance of $500-$510 into mid-January.
Tesla
