The correction picked up steam last week as the losses Friday after Thursday’s holiday was driven by the higher bond yields driven by renewed fears of high inflation. The selling was triggered by the monthly jobs report that reported a rise of 256,000 while the market expected only 155,000.
The resulting surge in the 10-year T-Note yield further decreased the market’s odds for a rate cut in March from 41% to 25% based on the data from the CME FedWatch. The higher yields are consistent with the positive signals from the MACD- His in the first half of December.
In early November there were signs that the higher yield momentum on the daily chart of the 10-year T-Note had topped out as the MACD-His had peaked in October and then formed a negative divergence, line c, before turning negative on November 8th. From a high yield of 4.505%, the yield declined to a low of 4.126% on December 6th (line b) as support, line a, was reached.
Just four days later the MACDs turned positive as yields moved sharply higher with a high on Friday of 4.790%. This put yields again above the daily starc+ band which has created an overbought reading that favors a pause in the rally over the next week or two. If yields do move lower the MACD-His could form another negative divergence as it is already below the December high.
This chart covers quite a bit of market history going back to June of 2024 as SPY’s decline from the July high was much sharper than the decline in the advance/decline lines. This set the stage for the breakout in the S&P 500 and NYSE All A/D lines on August 15th.
The pullback in early September was in reaction to the well-publicized negative seasonal history. It was followed by another A/D line breakout on 9/11 that set up good buying opportunities in both SPY and QQQ. The overall pattern stayed positive until early December as all three A/D lines continued to make new highs and supported the price action.
Then on December 10th all three of the A/D lines moved into the corrective mode by dropping below their EMAs. This was just two days after the 10-year T-Note yield made its low and started to move higher. The A/D lines rebounded back to their declining EMAs on 12/26 which was a classic selling opportunity in a correction. The A/D lines attempted to hold support heading into the jobs report but the 4 to 1 negative A/D ratio on the NYSE dropped the A/D lines below their support.
So where should one look for support? The Spyder Trust (SPY) closed just below the 20-week EMA at $581. The weekly starc- band is at $566.47 with the July high at $563.67. This is 2.8% below the Friday close. The chart also has the Wall Street year-end S&P 500 average targets for 2023 and 2024 that were both too low. The 2025 average target is at $661.40 which is 13.7% above Friday’s close.
The weekly S&P 500 Advance/Decline Line made a new high the week of November 29th and then closed below its WMA in the middle of December. Another lower close this week as it is in a short-term downtrend. The next A/D line support is at the early September low (dashed line).
The Invesco QQQ Trust (QQQ) closed at $507.21 and just above the still-rising 20-week EMA at $501.28. The July high at $503.52 was almost reached as the low was $503.92. There is additional support in the $494-$496 area with the weekly starc- band at $486.38 which is 4.1% below Friday’s close.
The Nasdaq 100 A/D line closed below its WMA last week and is already close to the support at line b. The weekly relative performance declined last week but is still above both its WMA and the support at line c. This indicates that QQQ is still leading the S&P 500.
All sector ETFs were lower last week led by XLRE (-4.1%) and XLK (-3%) while XLP, XLY, XLC, and XLU were down 2% or more. SPY was down 1.8% and QQQ declined 2.2%. Over the past 30 days, only four sector ETFs have outperformed the SPY and they are XLE, XLU, XLV and XLK.
From the T&J’s ETF Watchlist, there are now only 27.5% of the 120 monitored ETFs that closed the week above their new 1st quarter pivots. At the end of November 2024 there were 71% that closed above their QPivot. If the market is lower this coming week then these numbers will be even worse and then may take longer to recover.
There was a notable improvement in the action of the Health Care Select (XLV) which I will be watching. There was also more technical weakness for the Technology Select Sector (XLK) which closed below the 20-week EMA at $229.54 and hit the lowest level of the past seven weeks. There is next support at $227.35 while the yearly pivot is at $219.83. The weekly uptrend (line a) and the weekly starc- band are both in the $216.58 area. The close was below the monthly pivot at $234.63 which is now resistance.
The weekly relative performance (RS) peaked in July and has been diverging from prices as it has made lower highs, line b. The RS closed last week below its WMA with important support now at line c.
There was also a negative signal from the OBV as it closed below its flat WMA. There is long-term support for the OBV at line d.
I will soon take a more detailed look at the sectors I am watching along with their yearly pivots that can often keep you in the major trends. Earnings season starts on Wednesday with several major banks reporting and we also get the latest CPI report. A lower-than-expected inflation reading could trigger an oversold bounce.
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