US Equity markets remain bifurcated but are still trending higher despite ongoing deteriorating breadth issues, which have been exacerbated in recent weeks. US Dollar and Treasury yields have bounced, but this is thought to prove short-lived ahead of a coming pullback in both into year-end. Overall, the bullish seasonality coupled with the more confident outlook on FOMC’s rate cuts should allow recent consolidation to prove short-lived ahead of a pushback to new highs. Until/unless SPX and QQQ break the uptrend from early November (Near 6006 in SPX), the bull market rally looks back underway after just minor consolidation. Initial support for SPX lies near 6017.
A few points are thought to be important heading into the last two full weeks of 2024:
2024’s SPX returns of +26%+ have proven to be the best Election year performance in over 40 years.
Many of the exogenous factors that became consensus ideas as to why Equity markets should fall have simply not worked in recent months. These involve geopolitical unrest, election-related divisiveness, and question marks regarding the Fed’s timetable for further easing.
Rapid sector rotation has caused quite a few swings across sectors, but Technology’s leadership remains unwavering despite a few lackluster months this past Summer.
Despite the breadth deterioration, SPX intermediate-term breadth numbers remain in good shape and supportive of this bull market continuing as 2025 gets underway.
Sentiment seems to have become a bit less bullish given the decline in Equal-weighted SPX, and AAII’s “Percentage Bears” is at 31.70, which from a contrarian standpoint, is positive.
SPX’s pattern remains a bit choppy in recent weeks despite Large-Cap Technology having held up quite well in a way that makes SPX still favored over Equal-weighted S&P 500s (RSP 0.13% ) index.
Heading into next week, it’s thought that downside for ^SPX -0.33% should prove limited with SPX 6022-30 likely holding on weakness. Under this support range would allow for a bit more weakness to 5950-75 but ultimately prove to be a very attractive risk/reward opportunity.
On the upside, the ability to recapture 6059 should result in SPX turning back up to new highs with 6092-6100 being minor resistance zone. Over this level would allow for a push up to 6150-75 which might turn out to be an end-of-year area of importance.
At present, the short-term pattern isn’t bearish per se, but it requires some ability to strengthen back above 6059 to help jump-start the rally at year-end.
S&P 500 Index
Performance data shows ongoing short-term underperformance in most major sectors
As shown below, the negative performance out of many sectors in the past week, and month might seem at odds with an upsloping technical trend.
However, given large-cap Technology’s resilience, deterioration in other sectors like Utilities, Materials, Industrials, and/or Energy hasn’t proven that damaging.
Overall, I feel it’s important that the sectors with negative performance on a one-month basis start to stabilize and turn back higher in the coming weeks.
The lack of broad-based participation in the first three weeks of January would suggest an above-average possibility of market weakness following the Inauguration.
Invesco S&P 500 Equal Weight ETF
Russell 2000 ETF (IWM) looks to be nearing a low next week
As might be expected upon hearing that Equal-weighted SPX fell for nearly the longest consecutive period since 2018 over the past couple weeks, Small-caps also underperformed and have been weakening.
Since peaking most recently on 11/25, IWM -0.84% has fallen eight of the last 13 trading days, and erased about 11 points off its 244.98 intra-day highs from late last month.
IWM is now nearing a prominent uptrend line that arguably shows support near $228.50.
I suspect that 228.50-230.50 should prove to be an optimal area where IWM should bottom next week before turning back up to new highs.
At present, despite the ongoing short-term downtrend, the intermediate-term trend is very much intact, and as discussed last week, relative charts of IWM to SPX have shown an improvement in momentum since early November.
iShares Russell 2000 ETF
SPX cycle composite increasingly looks to have been correct
While SPX’s +1.10% gains in the rolling 1-month might seem at odds with what the cycle composite suggested might happen in December, when taking a closer look at Equal-weighted SPX and the performance of many sectors, this looks to have been more accurate than expected.
Seven of the 11 major sectors which make up S&P 500 have fallen in the last month, and increasingly it’s thought to be important to consider using Equal-weighted SPX given the strong influence of stocks like AAPL 0.77% , GOOGL -0.51% , NVDA -3.91% and MSFT -2.16% .
As can be seen below, this seems to bottom near 12/18-21, right near the Winter Solstice period, before turning up sharply into mid-January.
Thus, this next week’s FOMC meeting is thought to be a catalyst for a low in stocks (and low in Equal-weighted weakness of late) before prices push back to new highs.
I’ll detail the key timeframe to keep a close eye on in January when the new year gets underway.
At present, weakness should prove minor and short-lived before turning back higher for the back half of December.
SPX Cycle Composite
