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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.
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Thomas J. Lee
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