SPX’s technical trend and momentum have remained negative since early December 2024, but the post-CPI bounce in Equities has brought the price to near-important resistance, which will provide some clues/confirmation bearish over the next 3-4 days as to whether this bounce is sustainable. In recent days, Yields have shown some minor evidence of turning lower, which is thought to be a positive for US Equities. Furthermore, market breadth has shown some near-term improvement this week as Equal-weighted SPX has performed a bit better than Cap-weighted SPX. The worries at this point solely revolve around lack of bullish confirmation in price and momentum coupled with the very low level of market breadth. Overall, I feel that a larger-than-normal rally is right around the corner, which should carry US Stock indices up into mid-February. However, given a number of unconfirmed technical factors, one still can’t rule out some backing and filling in next week, which would provide an even better risk/reward opportunity for investors.
In recent days, SPX rallied up to challenge the ongoing downtrend from December, but until 6021 is exceeded, there remains a chance for “backing and filling” through next week. However, it’s right to fully embrace this rally if/when 6021 is exceeded, as that should drive a larger rally back to new highs.
A few meaningful developments have occurred in recent days:
- Treasury yields have begun to peak out
- Short-term market breadth has begun to rebound
- Sentiment has turned even more negative ahead of the upcoming Inauguration
Generally, these are all positive developments that speak to a good likelihood of a coming rally back to highs. However, in the short term, markets require a bit more structural progress.
I suspect that the next 3-5 days might provide some backing and filling to this week’s bounce before a larger rally gets underway. After all, despite Wednesday’s sharp rebound, weekly MACD remains negative, intermediate-term breadth levels still require a rebound (despite the constructive last few days) and the near-term structure and momentum still remains negative from early December.
Thus, it’s not wrong to continue to refer to this short-term price action as being part of a bearish short-term consolidation which began in early December. This in turn is part of a larger, bullish uptrend which has not been violated. The next few trading days should provide some clues if markets are ready to break out right away. Given AAPL’s persistent weakness, my gut feeling is that it remains a bit early.
S&P 500 Index
AAPL decline is worth paying attention to given its weight within SPX, QQQ
While the extent of this week’s rebound in Equal-weighted SPX has been a short-term “Arrow in the Quiver” for market bulls, the persistent weakening in stocks like AAPL is difficult to ignore.
As shown below, AAPL has undercut its early week lows and has closed at the lowest levels since last November. (Thus, this has broken down further from a necessary area of support which appeared to be held earlier in the week)
As daily AAPL 0.14% charts show, the stock did successfully break its uptrend from last August, and has undercut the two prior peaks from July and October 2024. This is sometimes considered important technically, as former areas of resistance often act as support when tested.
Furthermore, no evidence of counter-trend exhaustion is now present, which historically has occurred near meaningful lows in AAPL.
Given AAPL’s 7%+ weighting in ^SPX -0.68% and greater than 10% weighting in QQQ -0.90% , I feel AAPL’s weakness is certainly something which is causing a near-term headwind to SPX at a time when Financials outperformance has spurred on the Equal-weighted S&P 500 (RSP -0.81% ).
At present, AAPL looks early to bottom, and I expect at least a pullback to $220. (I had expected that both AAPL and NVDA might bottom out earlier in the week, but I still feel that NVDA is close to a low.) However, AAPL’s performance has proven negative to this thesis, and based on Thursday’s decline, AAPL looks to weaken a bit more next week.
AAPL
AAII bearish sentiment jumps over bullish sentiment levels by 15 percentage points
Some sentiment gauges are turning outright bearish lately ahead of the coming US Inauguration. The American Association for Individual Investors poll (AAII), for example, showed a reading of -15.20 in its Thursday 1/16/25 reading.
In other words, the difference between Bullish sentiment and bearish sentiment turned negative by 15 percentage points, with Bearish percentage readings at 40.60 and Bullish percentage readings at 25.40, the lowest levels since 2023.
As this chart shows, this past week’s Sentiment plunge has brought the Bull-bear spread back to slightly bearish levels for the first time since late 2023.
This isn’t extreme by any means, as this lies slightly lower than the Neutral level going back since 2017. However, the extent of the decline in recent months, given no meaningful market decline, is important and, from a contrarian perspective, bullish.
Abnormally high bearish readings on absence of true market bearishness normally points to an opportunity for US stock investors which likely lies right around the corner.
AAII Index
US Treasury yields look to be peaking in the short run
The last couple days of rallying in Treasuries looks meaningful technically, despite the presence of DeMark-based exhaustion on weekly charts.
I sense this should eventually be helpful in leading Equities higher into mid-February, as the correlation between Treasuries and Equities remains quite strong.
For now, the two-day sharp decline in US 10-Year yields has resulted in daily MACD rolling over to cross its signal line to the downside and should initially lead ^TNX 1.61% down to test 4.51%, near the former peak in yields from last November.
Thereafter, a mild bounce could ensue before yet another decline in yields into mid-February. I expect that the subsequent fall in TNX might reach 4.20%, the 50% retracement level of the entire former rally in Yields from last September into January 2025.
Unfortunately, it’s hard to make a compelling case for a 2025 peak in yields given just a few days of pullback in TNX. Cycles and momentum remain positively sloped on weekly charts until March when they begin to turn down more sharply for most of 2025.
Thus, one educated guess would involve a simple three-wave corrective pullback in TNX before yields turn back higher to test October 2023 highs in yields. If this were to happen, then Equities very well could face downside volatility in late February into early March unless the correlation starts to give way between Treasuries and Equities.
US Government Bonds 10 YR Yield
