Note: Due to travel commitments, the daily technical strategy and video will not be available tomorrow.
SPX’s decline has started to play “Catch-up” with the Equal-weighted SPX’s weakness, which has caused near-term momentum to roll over while breadth levels remain anemic following a record string of negative Advance/Decline sessions. US Dollar and US Treasury yield trends have turned more positive in the short run following a breakout of November highs, and the combination of these recent developments makes it difficult just yet to call for an immediate pushback to new high territory for SPX. While the Equities cycle does look to bottom ahead of the Christmas holiday, I sense that bounces into the end of the year might still require some additional selling pressure in January, given how strong momentum has rolled over in the last couple of weeks. Thus, trends have gotten a little trickier, given this week’s volatility. Overall, I suspect a bottom happens early next week (Monday-Tuesday) ahead of a bounce.
It’s not wrong to say the degree to which SPX has rolled over to join the weakness in Equal-weighted SPX (and not vice versa) is a concern to those who look at markets technically.
The minor stalling out in SPX today wasn’t indicative of a bounce as Equal-weighted SPX continued to push lower, and has now reached the lowest levels since early September. Thus, the cycle studies have proven more correct than I would like to admit in the near-term, but now seem to indicate some relief between next week and mid-January.
Unfortunately, the wave structure has begun to look a bit more negative after a severe bout of downside volatility, which coincides with a minor breakdown in Technology on an absolute basis.
As many have pointed out, the Equal-weighted SPX has reached levels from before the FOMC started to cut interest rates.
In the short run, this severe sharp pullback likely could hit 172 in RSP 0.10% before stabilizing and beginning a bounce. I suspect this begins next Monday/Tuesday.
Invesco S&P 500 Equal Weight ETF
The degree of broad-based participation on this bounce will determine whether a push to new highs can happen just yet, but following a possible five-wave decline (in the making), one can’t rule out a counter-trend bounce, which then gives way to yet another bout of selling before lows are in place.
The US Dollar has joined TNX in moving above November peaks
Unfortunately, seeing a rapid spike in the US Dollar back above November highs likely does not coincide with an immediate strong recovery back to new highs for US Stocks.
Times of rapid US Dollar upward acceleration which are coinciding with Yen weakness and US Treasury yields pushing higher likely will serve to cause underperformance in Emerging markets as well as many commodities.
I’ll discuss my outlook for the US Dollar in 2025 during my 2025 Technical outlook on 1/7/25.
U.S. Dollar Index
Breadth levels have gotten very compressed, which should coincide with a near-term low next week
Low breadth levels like what markets have produced in recent weeks normally can prove to be short-term buying opportunities.
However, the intermediate-term conclusion sometimes can prove to be the opposite, unless breadth starts to come back very sharply on a rally.
I sense that the breakdown of SPX trendline support on above-average negative breadth and momentum deterioration likely will prove to result in additional selling pressure some time in January following a bounce.
For now, it’s insightful to see that under 8% of all SPX issues are above their 20-day moving average (m.a.), a level that hasn’t been seen in more than a year.
The percentage of SPX names above their 50-day m.a. has also dropped to under 20%. That’s normally not a great sign, but it will be something we’ll discuss in January.
At present, I view the short-term low level of breadth when eyeing 20-day m.a. as meaning that many issues are oversold in the near term and should be close to a rally.
iShares Russell 3000 ETF
Natural Gas looks attractive and might be on the verge of a larger breakout
Thursday’s rally in Natural Gas to multi-day highs is quite bullish technically, and very well could coincide with a breakout of the downtrend that’s been in place over the last two years.
The chart below highlights only 2024 and this area lies near 3.65 in front-month Natural Gas futures. Consecutive daily closes above $3.65 and weekly closes above 3.65 should result in a very sharp advance in Natural Gas in the weeks and months to follow.
While the price of WTI Crude oil and Energy stocks has been weakening of late (and should continue to weaken) I’m not sure that we can say that Natural Gas should also weaken.
LNG exports are due to rise under the new administration, and while sometimes the prices of natural gas and crude oil are positively correlated, they often move in response to different fundamental forces and also have different cycles.
Thus, for those involved in Energy, seeking out Natural Gas related names will likely prove to be a source of outperformance in what looks to be a difficult sector for 2025.
Natural Gas ETF’s and ETN’s are notoriously difficult to invest in given the futures roll combined with the extraordinary volatility that happens in the Natural Gas market. However, I do expect that UNG -4.49% likely can advance up to test this past Summer’s peaks which lie in the low $20’s.
Natural Gas Future
