SPX looks to have begun a late December rally, which started late last week and might last until right after the Christmas holiday. Despite the anemic breadth issues plaguing the market, Technology continues to hold up well and should be favored as a sector to overweight heading into 2025. US Dollar and US Treasury yield trends are short-term positive after a push above November highs, and this combination might prove to be problematic towards the potential for an immediate rally back to new all-time highs in US Equities. At present, sentiment has become more subdued, while Equity momentum has rolled over to negative on a short-term basis, given recent selling pressure. Moreover, following 14 days of negative market breadth out of the last 16, it’s right to be a bit cautious regarding the longevity of this bounce, as both trends and momentum have grown a bit weaker in the near term. For now, given some notable stabilization, albeit on lesser volume, it’s right to favor a bounce into late this week.
Hourly charts show some impressive near-term stabilization in SPX last Friday that argues for a further bounce in SPX as the holiday season comes into full swing.
Monday’s early pullback didn’t prove too meaningful and looked to have bottomed right at a 50% price retracement of the prior pullback from late last week (12/18-12/20).
Ideally, gains could reach 6035, which would approximate the prior December swing lows from 12/10-12/17.
Following a few days of positive follow-through higher in SPX, one needs to be watching for any evidence of trend failure given the poor breadth coupled with ongoing US Dollar and US Treasury yield resistance.
For now, I feel it’s proper to expect any Monday bounce following the early setback might approximate the initial bounce higher from 5832 in both price and time.
If/when SPX’s advance starts to stall out near the 6035 area and appears unlikely to move back to new highs right away, then a possible pullback might happen during the final week of December and/or the first week of January.
While some investors might feel such an event is a low probability, it’s also problematic to see the extent of the weakness in Equal-weighted SPX during the month of December. Last week’s selloff resulted in some momentum deterioration that might require some time before it can be counted on to rally back to new highs. Monday’s early day decline in market breadth rebounded into the close to finish, just partially positive on the session.
The hourly SPX chart with possible Elliott-wave counts is highlighted below.
S&P 500 Index
Overall, 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.
If Monday’s Industrials has nearly reached support following three consecutive weeks lower
2024’s advance in the Industrials sector to new multi-decade highs in relative terms to the SPX made this sector one to overweight in 2024.
Recent technical deterioration hasn’t changed much in this picture, as shown below, as the Industrials sector remains above its intermediate-term uptrend.
Overall, recent weakness makes Industrials a better risk/reward heading into 2025. Furthermore, sub-sectors like Transportation, where DJ Transportation Average broke out to new all-time highs this past Fall but has receded sharply, likely represent an appealing risk/reward heading into next year.
The chart below is the daily chart of RGI, the Equal-weighted Industrials sector.
Invesco S&P 500 Equal Weight Industrials Portfolio
Consumer Staples has pulled back to new yearly lows ahead of 2024’s end
While some sectors have attempted to show mean reversion as the year comes to a close, Consumer Staples is not one of these.
As shown below, the decline to new yearly lows in the Equal-weighted Consumer Staples ETF (RHS) makes “Staples” a sector Underweight heading into next year.
To the “Market bulls” credit, seeing defensive groups like Staples hitting new annual lows even in the wake of a negative month (thus far) for the Equal-weighted S&P 500 is a vote of confidence heading into 2025.
Normally, outside of breadth deterioration, when defensive sectors like Consumer Staples start to make a stand, this can normally warn of potential market volatility.
This year, we’ve seen the opposite, and Staples remains a technical underweight.
Invesco S&P 500 Equal Weight Consumer Staples ETF
Energy breakdown warrants patience given the strong likelihood of 1st Quarter underperformance
December’s pullback in Energy solidifies this sector as an Underweight heading into 2025.
As monthly relative charts of Equal-weighted Energy (RYE) vs. Equal-weighted SPX (RSP -1.33% ) shows below, Energy has fallen to the lowest levels since early 2022.
DeMark counts on both weekly and monthly charts show a bottom to be premature and might not happen until at least the end of the 1st quarter, and potentially into Summer of 2025.
I’ll discuss this more in my 2025 Annual Outlook, but Energy remains an Underweight heading into next year and investors should have patience and selectivity if/when trying to own Energy.
RSPG/RSP
