Happy New year to All ! Tune into my 2025 Technical Analysis Outlook webinar on 1/7/25.
SPX is still technically within its bearish short-term consolidation pattern that began nearly five weeks ago, and the last couple of days of index gains have proven insufficient toward turning trends back to bullish. Treasury yields and US Dollar remain pointed higher in the short run and might stay elevated until the Inauguration, which might usher in a sharp pullback in both at a time when the investing public least expects it. While I remain constructive on the intermediate-term path for Equities, I’m unable to turn short-term bullish just yet based on a lack of progress and ongoing structural deterioration coupled with weaker breadth data. Any weakness in the coming weeks should help SPX become more appealing from a risk/reward standpoint. At current levels, the two-day bounce to kick off the new year looks to have stalled right where it needed to
As shown below, despite the sharp two-day rally in US Equities, prices haven’t yet surpassed resistance which looks strong for both SPX as well as QQQ. Breadth finished flat on Monday while more volume occurred in declining issues than advancing for NYSE. Prices failed to close higher than the opening price of the session while both Equal-weighted SPX along with DJIA finished negative on the day.
Despite the strong comeback in Technology lately, this recent bounce has proven far too lackluster with regards to broad-based participation. That needs to change before growing too bullish on a move back to highs.
As can be seen below, SPX pushed up to 6021 before failing. This will continue to be an important area into Tuesday’s session. Meanwhile, a decline back under 5935 would raise the odds of a test and violation of early January lows at 5829.35.
If this happens, it should result in a pullback to 5700 but it would make SPX quite appealing on weakness over the next week(s).
S&P 500 Index
I’ll repeat the negatives and positives that I mentioned in late December 2024, as I feel they remain relevant and very much in place.
The negatives which have cropped up in recent weeks have to do with the following:
- The lackluster market breadth and Equal-weighted S&P 500 decline in December.
- Bearish Elliott-wave structure.
- Traditional momentum gauges like MACD have rolled over to negative for SPX.
- SOX is down more than 12% off July 2024 peaks.
- Four-month uptrend line violation.
To the Equity market’s credit, however, the following remain quite positive
- Ongoing bullish uptrend from 2023 lows.
- No evidence of Credit deterioration; High Yield Junk spreads to Treasuries remain extremely “tight.”
- Sentiment has retreated from its Bullishness from early November.
- QQQ’s weekly DeMark exhaustion signals remain premature by at least two weeks.
- No evidence of trend damage from Financials, Industrials, nor Discretionary which have pulled back to near attractive levels.
- Defensive sectors like Consumer Staples have pulled back to new annual lows.
- Short-term cycle composites, which suggested weakness from late November into mid-December, now look to have bottomed.
- Bullish seasonality in December.
- Technology has held up relatively speaking and on an absolute basis.
RSP’s chart looks quite a bit weaker than SPX
Despite the lackluster breadth of late, the key concern revolves around how much damage the Equal-weighted SPX suffered from late November.
That caused the percentage of SPX names trading above their 200-day moving average to drop to just above 50%.
While I expect a recovery in RSP in the months ahead, it’s hard to make the case of a sustainable bottom just yet based on the last couple weeks.
Invesco S&P 500 Equal Weight ETF
Sentiment has begun to contract sharply
Despite the many short-term negatives happening within the US Equity market, sentiment has begun to turn more negative in recent weeks.
This is a positive in my view, as investors have overestimated the degree to which tariffs will immediately lead to a bounce in inflation.
Overall, concern regarding Trump’s policies seems to have directly led to sentiment turning far more subdued than the price deterioration warrants of late.
Given that uptrends remain very much intact on an intermediate-term basis, a severe contraction should ultimately be seen as bullish for US Equities, not bearish.
Once the media’s narratives become “Consensus” for the marketplace, it normally pays to take the other side.
Last week’s AAII data showed AAII Bullish percentages at 35.4%, just one percentage point over the Bearish percentages at 34.20%. This is very much Neutral, not bullish or bearish. However, the fact that sentiment has retreated so sharply in the last couple of months is certainly a reason for optimism for the months ahead.
AAII
WTI Crude looks stretched but has made some minor progress in recent weeks
Overall, I sense that Crude oil likely should begin a short-term pullback starting this week following its recent surge higher to end the year in a better technical position than in early December. Following its push to the mid-$70, a decline down to $70 makes sense and would represent a possible area of stabilization in the short run.
However, given the shift in momentum in recent weeks, I suspect that Crude (and Energy as a sector) might show some minor progress into February before a larger decline gets underway.
Overall, trends are down for Crude since late 2023 and Energy in equal-weighted terms pulled back to new multi-year lows vs. SPX. However, the near-term charts have shown some minor improvement over the last couple weeks, and Crude oil has broken out of a short-term downtrend.
Overall, my thinking is that Crude moves lower initially, then a minor bounce into next month. Thereafter, a pullback in Crude could get underway that would take Crude down under $50. This should be bearish for Energy, and remains one reason why many investors might choose to concentrate on other sectors.
Light Crude Oil Futures
