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It was another tough day for stocks, with the market down over 1%. The S&P 500 finished 1.07% lower, but the breadth numbers were particularly weak. Of the S&P 500, 470 stocks were down, 31 were up, and two were unchanged—an overwhelmingly bearish day.
On the New York Stock Exchange, there were 823 more decliners than advancers, which is better than Friday’s 1,700+ decliners but still negative. The McClellan Oscillator for the NYSE is at -43, down from -5 after rising briefly from -106. This indicates that breadth remains weak. The Summation Index has declined to -351, reinforcing the poor breadth metrics.
Considering these numbers, the S&P 500 might have been expected to drop more. The equal-weighted S&P 500 (RSP) has fallen nearly 7.5% from its November 27 peak, compared to just a 3% decline in the leading S&P 500. The Nasdaq is down around 4% from its high, while the Russell 2000 (IWM) has fallen nearly 10%.
Sector-specific indices highlight more profound losses. The housing sector (HGX) is down 18% from its peak and is trading near July levels, only a few percentage points above where it started in 2024. The materials sector (XLB) has dropped 15% from its highs and is back to its start-of-year level. Without the strong performance of the “Magnificent Seven” stocks, overall S&P 500 losses would likely be much steeper.
This market weakness seems tied to liquidity issues and rising rates, trends that have persisted since mid-October. Key sectors like XLB and HGX peaked around that time, forming double tops before declining.
Today’s S&P 500 movement looked like a rebalancing event. As I noted in my midday subscriber update, the last two trading sessions saw significant selling pressure in futures between 7 and 8 AM, ahead of the market open, on decent volume. A similar decline occurred around 7 AM today, but on lighter volume. If this pattern repeats tomorrow, it could confirm that these moves are related to rebalancing or similar flows.
The 10-year yield dropped 9–10 basis points today, though the reason is unclear. With yields rising 70 basis points this year (from 3.83% on January 2 to 4.53%), today’s drop could also reflect portfolio rebalancing as the year ends.
It’s also worth noting that most global markets are closed on December 31, while U.S. markets remain open all day, making them a key liquidity source heading into the year’s final trading day.
Today, the S&P 500 found support around 5,875 and faced resistance at 5,935 levels throughout the afternoon. If support at 5,875 breaks, the next level to watch is 5785, which could lead to more significant moves as we start the new year.
A potential head-and-shoulders pattern is forming on the S&P 500, but it needs a break below 58.75 before we can draw firmer conclusions. We’ll need to stay patient and see how things develop over the next day or two.
Wishing you a great evening and a Happy New Year! See you on January 2.
-Mike
Key Terms:
1.McClellan Oscillator: A technical indicator that measures market breadth momentum by analyzing the difference between advancing and declining stocks. Negative readings, like -43, point to a weakening trend.
2. Summation Index: This is a cumulative version of the McClellan Oscillator used to track longer-term market breadth trends. A deeply negative value, like -351, highlights sustained weakness.
3. Double Top: A bearish chart pattern where an asset’s price peaks twice at similar levels before declining. It’s often a precursor to a downtrend.
4. RSP (S&P 500 Equal-Weight Index): An index that weights all 500 S&P stocks equally, contrasting with the market-cap-weighted S&P 500. It often reveals broader market health that mega-cap stocks can obscure.
5. HGX (Housing Index): A sector-specific index tracking housing-related stocks. Its 18% decline from peak levels indicates significant sector challenges.
6. XLB (Materials Sector ETF): Tracks materials companies, highlighting industry trends like chemicals, construction materials, and mining. It has given back most of its yearly gains.
7. Magnificent Seven: A recent term referring to the seven dominant mega-cap tech stocks (e.g., Apple, Microsoft) that have disproportionately influenced the S&P 500’s performance.
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Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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