Market Recap: Santa Claus Rally Persists Despite Friday Selloff

Weekly Market Performance

The stock market experienced an interesting week, with the traditional Santa Claus rally continuing despite a significant selloff on Friday. Let's break down the key points:

Major Indices Performance

• Dow Jones Industrial Average: Down 0.75% (333 points) on Friday, closing below 43,000
• S&P 500: Dropped 1.1%
• NASDAQ: Fell almost 1.5%
• NASDAQ 100: Held up slightly better, declining 1.36%
• Russell 2000 (small caps): Down 1.33%
• S&P 400 (mid-caps): Decreased by nearly 1%

Despite Friday's poor performance, the major indices still managed to close higher for the week:

• Transports
• NASDAQ 100
• S&P 500
• S&P 400
• Dow Jones
• Russell 2000

Volatility

The VIX (volatility index) jumped 8% on Friday, which is unusual for December. Typically, December is a bullish month with lower volatility. However, the VIX remains below 17, which is not yet at concerning levels.

Market Leaders and Laggards

Top Performers (Year-to-Date)

• Apple: +38%
• Meta: +74%
• Amazon: +49%
• Tesla: +73%
• Google: +40%
• Microsoft: +17%
• Broadcom: +126%
• NVIDIA: +184%

These large-cap, heavily-weighted stocks have been driving the S&P 500's strong performance in 2024.

Sector Performance

• Consumer Discretionary: Mixed performance within the sector. While Amazon and Tesla had great years, many smaller companies in the XLY (Consumer Discretionary Select Sector SPDR Fund) showed negative returns.

• Financials: Generally strong performance across the sector, particularly in banks.

• Healthcare: Bounced off key support levels between 135 and 140 on the XLV (Health Care Select Sector SPDR Fund).

• Technology: Mixed performance, with some standout winners and others lagging.

Market Internals and Rotation

Relative Rotation Graph (RRG) Analysis

The RRG chart for December 2024 shows an interesting pattern:

1. Aggressive sectors (e.g., Technology, Consumer Discretionary, Communication Services) are showing relative strength, positioned on the right side of the chart.

2. Defensive sectors are underperforming, contrary to what would be expected if the market was preparing for a downturn or increased inflation.

3. Real estate, typically a good hedge against inflation, is showing weakness on a relative basis.

This rotation pattern differs significantly from what was observed in December 2021, just before the 2022 market downturn. At that time, money was rotating away from aggressive sectors into defensive ones, signaling preparation for potential market weakness.

Individual Stock Analysis

Communication Services Sector (XLC)

1. Live Nation Entertainment (LYV):

   • Strong relative strength but momentum slowing
   • Pulling back in December, approaching 50-day moving average and gap support levels
   • Potential buying opportunity emerging

2. iShares NASDAQ Biotechnology ETF (IBB):

   • In the weakening quadrant but showing signs of rotation back towards the leading quadrant
   • Holding up well relative to the market
   • Potential support around the $48 level

Consumer Discretionary Sector (XLY)

1. Lululemon (LULU):

   • Moving from lagging to improving and into the leading quadrant
   • Strong momentum and relative strength
   • Bouncing off the 20-day moving average
   • Solid performer since August lows

2. Garmin (GRMN):

   • Recently moved into the leading quadrant
   • Pulled back from December highs
   • Support between $198 and $205
   • 50-day moving average at $202
   • Potential buying opportunity on further pullback to $204-$205 range

Market Outlook and Considerations

Potential Head and Shoulders Pattern

The S&P 500 daily chart shows a possible head and shoulders top formation:

• Left shoulder
• Head (higher high)
• Right shoulder (current price action)

However, it's important to note that this pattern is not bearish until it executes. Watch the neckline and gap support from just before the election (around 5800) for confirmation.

Sector Rotation Insights

The current sector rotation does not align with expectations for a market preparing for significant downside, inflation concerns, or recession fears. Typically, in such scenarios, we would expect to see:

1. Underperformance in aggressive sectors
2. Outperformance in defensive sectors
3. Strength in real estate as an inflation hedge

The fact that we're not seeing these typical rotations suggests that the market may not be as bearish as some analysts predict.

Looking Ahead to 2025

While some market participants are expressing concerns about 2025, the current market internals and sector rotations do not strongly support a bearish outlook. Key points to consider:

1. Aggressive sectors are showing relative strength
2. Defensive sectors are underperforming
3. Real estate is weak, contrary to inflation expectations
4. Market leaders (e.g., Apple, Amazon, NVIDIA) continue to show strength

It's important to remember that markets don't move in a straight line. Pullbacks and periods of consolidation are normal and often present buying opportunities in a secular bull market.

Upcoming Market Vision 2025 Event

For those interested in a more detailed analysis and outlook for 2025, the Market Vision 2025 event is scheduled for Saturday, January 4th, starting at 10:00 AM Eastern Time. Key highlights:

• Guest speaker Dave Keller from StockCharts will present various market scenarios for 2025
• The event will cover "The Year of Diverging Returns"
• Attendees will receive a free annual membership to EarningsBeats.com with their registration

Conclusion

While the market experienced a selloff on the final Friday of 2024, the overall weekly performance remained positive, continuing the Santa Claus rally. The current market internals, sector rotations, and individual stock performances suggest that the bullish trend may continue into 2025, despite some analysts' concerns.

Investors should remain vigilant and watch for key support levels, potential chart patterns, and sector rotations that could signal a change in market direction. As always, it's crucial to maintain a diversified portfolio and adjust strategies based on changing market conditions.

As we head into the New Year, stay safe, especially if traveling, and consider joining the Market Vision 2025 event for more in-depth analysis and predictions for the coming year. Happy New Year and happy trading!

Article created from: https://youtu.be/whVSyXpjuvo?feature=shared