Note: Due to travel commitments, there will be no daily technical strategy video this evening.
Markets remain quite choppy, with SPX largely range-bound over the last eight trading sessions as part of an ongoing bullish uptrend. Despite ongoing deteriorating breadth issues, I expect this recent consolidation to be resolved higher initially, but it remains important for markets to demonstrate some above-average sector participation after the FOMC meeting, given how weak the near-term underperformance has proven to be in many sectors. 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, I don’t think the breadth of weakness matters just yet to the US stock market. Technology has successfully managed to turn higher in a way that’s been helpful to the market indices, despite underperformance in many various sectors. Near-term, this looks to continue.
SPX has now faced one of the largest periods of consecutive negative breadth in over 20 years, as the latest reading of more Decliners to Advancing issues brings this number to 12, only surpassed in 2001.
In the short run, SPX has largely avoided turning down specifically given Technology’s outsized strength and comeback in recent weeks. I expect that this recent range between 6035-6085 should lead to a pushback to new highs into year-end.
However, as discussed in prior notes, the longevity of any triangle breakout depends on broad-based participation out of sectors like Financials, Industrials, and Consumer Discretionary in the weeks to come.
Hourly charts show the SPX’s trading range since early December. Into and post FOMC this week, I expect SPX to begin to start pushing higher in the so-called “Fed Drift” which largely sees SPX normally rally into FOMC meetings.
The key level on the upside remains 6085, which I suspect should be tested and exceeded in the coming week. Only a break under 6035 would negate this scenario and postpone the rally.
S&P 500 Index
SPX structure suggests a coming breakout, which might lift into year-end ahead of early-year consolidation
When extrapolating the wave lengths of the rally since early November, the most common target looks to be 6160-82.
This area is projected based on equal-length projections of the 11/4-11/11 rally (as measured from the 11/15 low) as well as a Fibonacci-based alternative projection of the 11/4-12/6 rally. Additionally, if one measures the length of the 9/6-10/17th rally compared to the one which began on 10/31, this also fits into this window.
Thus, I expect that SPX has roughly 110-130 points of upside, while the downside in the days ahead should be limited to 6135. While this does look like an attractive short-term risk/reward, a rally into year-end would very likely complete the pattern of the entire rally from early August.
Thereafter, I suspect SPX gave back 38-50% of the rally, which began from early August into the present. For now, I don’t see much near-term downside and expect that SPX lifts to finish the year on a high note, likely starting this week.
S&P 500 Index
Magnificent 7 outperformance has dominated US stock market in December
This Bloomberg chart shows the extent to which “Magnificent 7” (Mag 7) has dominated the rest of the US stock market in December, which has proven significant in recent weeks.
The “Mag 7” is up more than 11% while SPX is up just ~1%, and Equal-weighted SPX is lower by ~-2.50%.
While this kind of dispersion looks unhealthy at present, it doesn’t suggest that the broader market cannot begin to play “Catch-up” and join the performance of the Mag 7.
This monthly chart below shows that the Magnificent 7 compared to the SPX has dominated performance by the most since mid-2023.
At present, many portfolio managers seem to be “dumping” longs that aren’t working and simply sticking with those stocks which continue to hit new highs. While I don’t suspect January will prove to show the same kind of dispersion, it’s creating an interesting amount of divergence in what’s proven to be the best Election year performance for SPX in over 40 years with nine trading days remaining.
Magnificent 7 Outperforming
Healthcare Providers group has fallen to the lowest in nearly three years
The perception of radical change coming within Healthcare has caused the Ishares US Healthcare Providers ETF (IHF -0.35% ) to begin to accelerate following its December violation of support near $51, which held for most of 2024.
This suggests a possible move to $43-$45 before this decline is complete.
While IHF has gotten oversold in recent days and nearing DeMark based exhaustion, the wave structure suggests that any bounce into year-end likely proves short-lived ahead of additional selling pressure.
Long-term, monthly logarithmic-based charts show $43-$45 to offer some meaningful intermediate-term support, which I feel could create a buying opportunity in this sub-sector into January for a meaningful trading bounce.
However, in the short run, I don’t expect that this recent selling pressure makes IHF attractive as the pattern suggests additional downside volatility could be possible in the weeks to come into January 2025.
iShares U.S Health Care Providers ETF
