Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Last week, the indices managed to log decent gains.

While we saw an uptick in volatility (the VIX hit a year-to-date high of 22 on Monday), the S&P 500 recorded its largest weekly gain (+3.0%) since November, and the Nasdaq gained 2.4%.

It was just the second positive week out of the past six for the S&P 500, which, at Friday’s close, was less than 2% below a record high set on December 6.

The price of the most widely traded cryptocurrency, Bitcoin, surged near the record level it reached a month earlier. Bitcoin climbed on Friday to around $104,700 in afternoon trading, up from $94,500 at the end of the previous week. The currency hit its record high of approximately $108,000 on December 17.

The early days of 2025 have delivered plenty of market headlines, some volatility, and further evidence of economic and corporate strength.

However, the biggest surprise has likely been the magnitude and speed of the rise in bond yields.

What might traditionally be considered good news for the economy has instead been interpreted as bad news for markets when viewed through the lens of inflation and Fed policy.

Traders who were once overly confident in the Fed’s willingness to cut rates may now be underestimating its flexibility.

Last week, the benchmark 10-year Treasury yield briefly touched a 14-month high of 4.8% before retreating following encouraging inflation data.

This marked the third time since the start of the bull market in October 2022 that the 10-year yield exceeded 4.5%—a threshold that, in the past, has triggered some indigestion for equities. The first instance was in the summer of 2023, which led to a 10% pullback in the S&P 500, and the second was in April 2024, resulting in a 5% decline. Despite these pressures, the bull market has remained intact, supported by solid fundamentals.

The start of the fourth-quarter earnings season serves as a good reminder of the influence that earnings have in driving stock market direction and returns. Interest rates can impact valuations, but the strength of corporate profits is a more sustainable driver of performance.

The banks kicked off the earnings season last week, delivering strong results and pointing to a favorable macroeconomic environment. More broadly, S&P 500 earnings are expected to increase by 11% in the fourth quarter from a year ago, which would represent the strongest growth in three years.

If S&P 500 earnings grow by 10% or more in 2025, as analysts expect, stocks can advance even after a modest decline in valuations. In this scenario, the price-to-earnings ratio would need to fall below 19.5 from 21.5 currently to fully offset the gains from rising profits.

Policy headlines will likely dominate the narrative after Inauguration Day on Monday, with markets attempting to calculate expectations for growth and inflation based on what’s announced. Despite the uncertainty, the upside of the bond market rout in December and early January is that it helped unwind some investor sentiment extremes.

In October, twice as many investors anticipated market increases rather than declines. However, the current bull-to-bear ratio has now dropped to slightly under one, indicating more balanced sentiment. Even though the Fed’s path and the new administration’s policies remain somewhat uncertain, this reset in expectations may pave the way for the next leg higher in stocks.

Given the potential for tariff announcements from the Trump administration early next week, along with the near-term overbought technical setup, we could see some weakness in the early part of the week.

In any case, as always, we will Trade What We See Technically, Not What We Think.

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Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

The major U.S. stock indexes fell around 2%, recording their second weekly decline in a row as investors worried about a potential slowdown in the pace of interest-rate cuts.

It was the fourth negative week out of five for the S&P 500, which finished down more than 4% from a record high set on December 6.

Small-cap stocks underperformed their large-cap peers for the fifth week in the past six weeks, as the Russell 2000 Index dipped into correction territory on Friday morning. As measured by Russell 1000 indexes, value stocks held up better than their growth counterparts. The Nasdaq Composite fell 2.34%, its biggest weekly drop since mid-November.

The price of U.S. crude oil rose for the third week in a row, climbing to nearly $77 on Friday. Over that three-week stretch, the price was up more than 10%.

Gold futures rose for the second week in a row, reaching around $2,717—less than 3% shy of the record level reached two and a half months ago.

Although the jobs reports were positive last week, the reaction in the financial markets was largely negative.

This was in part because markets are reassessing the need for further central-bank rate cuts. In fact, according to the CME FedWatch tool, markets now expect just one more Fed rate cut in 2025, in the July timeframe, which would bring the fed funds rate to 4.0%–4.25%.

As a result, government bond yields moved sharply higher, especially short-term government yields, which tend to be more driven by central-bank policy rates.

The higher yields weighed on stocks, particularly those parts of the market with the highest valuations. In the U.S. markets, the technology-heavy Nasdaq underperformed, while defensive parts of the market like utilities and health care held up better.

The uncertainty around which policies from the new pending administration are prioritized, and in what order, may continue to remain an overhang on markets. If the administration focuses on some of the more potentially inflationary policies first, like tariffs and immigration reform, this could be more disruptive for markets. However, if these are balanced with pro-growth initiatives like deregulation and tax cuts, we could also see a more balanced outcome in markets. Overall, though, the removal of this policy uncertainty alone may be welcomed by the markets, regardless of the initiatives that are prioritized.

Regardless of which party is in power, stock markets usually do well over a new four-year presidential cycle. In fact, the S&P 500 has averaged a gain of over 10% in the first year of that cycle.

In any case, as usual, we will be Trading What We See Technically, Not What We Think.

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Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

The indices gained ground last week despite Friday’s profit-taking slide, continuing 2024’s strong upside performance as we approach year-end next Tuesday.

For the week, the S&P 500 improved 0.4%, while the Nasdaq gained 0.8%.

However, the Dow’s 2.6% decline on Wednesday marked the index’s tenth consecutive negative trading day—the longest such streak since an 11-day decline in 1974. Over this 10-day skid, the Dow fell 6.0%. The streak ended on Thursday with a modest uptick.

For the second week in a row, bond prices tumbled, pushing yields higher. The 10-year U.S. Treasury yield climbed to its highest level in nearly seven months, peaking at 4.59% on Thursday before retreating to 4.53% at Friday’s close. This was a significant rise from 4.15% two weeks earlier and a recent low of 3.62% on September 16. These higher yields weighed on the indices, creating selling pressure throughout the week.

Year-to-date, the Nasdaq Composite leads all indices with a 31.4% gain. The S&P 500 is up 22.7% YTD, the Dow Jones Industrial Average has gained 14.1% YTD, and the Russell 2000 is up 10.7% YTD.

Last Week’s Top Gainers

• Healthcare: MESO (+19.96%), ALLO (+17.91%), PBYI (+12.73%), OMER (+12.46%)
• Consumer Discretionary: DESP (+32.05%), PLYA (+27.89%), HMC (+20.26%), GRPN (+15.77%), SERV (+11.88%), TM (+11.8%)
• Information Technology: CMTL (+12.47%), GDS (+12.45%)

Relative Strength Areas

• Short-Term Futures: VXX (+4.81%)
• U.S. Natural Gas: UNG (+2.6%)
• U.S. Oil: USO (+1.01%)

Overall, the indices’ chart patterns and underlying technicals suggest a potential topping process. While another short-term push higher could occur following last week’s oversold conditions, traders should remain cautious heading into the January 8–12 time frame, where a deeper retracement may begin.

As always: Trade What You See Technically, Not What You Think.

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Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Market Volatility Strikes Midweek
Last week, stocks took a volatile turn, with the major U.S. indexes falling around 2% overall.

After a 27% gain in the S&P 500 through Monday last week, it was not unexpected to see some pullback in the major indices, particularly as we head into year-end and investors consider profit-taking, rebalancing, and tax-loss selling.

Stocks took a sharp turn midweek, with the major U.S. indexes falling around 2% overall in a week punctuated by a significant decline on Wednesday. However, a partial recovery rally on Friday offset much of the earlier drop.

S&P 500, Dow Corrections, and the Dow’s Historic Streak

Even with last week’s pullback after the Fed meeting, the S&P 500 is still up about 24%, while the less tech-heavy Dow Jones Index is up about 14%. From peak to trough, the decline in the S&P 500 was approximately 3.5%, while the Dow Jones dropped around 6%, indicating that both indexes experienced corrections of less than 10%—a common occurrence in most years.

The Dow’s 2.6% decline on Wednesday marked its tenth consecutive negative trading day—the longest such streak since an 11-day decline in 1974. During this skid, the Dow fell 6.0%. The streak ended on Thursday when the index rose slightly.

The VIX Surges and Bond Yields Rise

The VIX volatility index, which tracks investors’ expectations of short-term U.S. stock market volatility, surged about 74% on Wednesday, with nearly all the increase occurring after the U.S. Federal Reserve concluded its policy meeting in the afternoon. The CBOE Volatility Index closed Wednesday’s session at 27.7, up from 15.9 the previous day. By Friday’s close, it had settled back down to 18.4.

For the second week in a row, bond prices tumbled, pushing yields higher. The yield on the 10-year U.S. Treasury note climbed to its highest level in nearly seven months, reaching as high as 4.59% on Thursday before retreating to around 4.53% at Friday’s close. This was up from 4.15% two weeks earlier and a recent low of 3.62% on September 16.

Looking Ahead: Light Trading Week with Bullish Momentum Possible

Next week is expected to be light on the economic front. There are no major earnings reports on the calendar, and there are only 3.5 trading days (a half-day on Tuesday, with markets closed on Wednesday). As a result, trading volume will likely be light, and the potential for recent bullish momentum to persist remains relatively high.

Bull Market Drivers Remain Intact

More broadly, traders and long-term investors should take comfort in the fact that, despite last week’s volatility, not much has changed from a fundamental perspective. Markets will undoubtedly face increased volatility and new “walls of worry” next year, including uncertainty around government and Fed policies. However, the underlying drivers of the bull market remain intact.

As always, we will continue “Trading What We See Technically, Not What We Think.”

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Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Last week saw mostly lower indices, with the S&P 500 (SPX) losing 0.6%, snapping a three-week string of gains, while the Dow Jones Industrials was off 1.8%.

The Nasdaq Composite Index briefly surpassed 20,000 before backing off to close at 19,927, gaining 0.3% for the week. The Nasdaq’s relatively strong results from communication services sector stocks helped the index outperform its peers.

The index of U.S. large-cap growth stocks outperformed its value counterpart by a wide margin for the second week in a row, extending the growth equity style’s year-to-date outperformance. At Friday’s close, the growth index was up about 3.9% over the two-week period, while the value index was down an equal amount.

Meanwhile, the PHLX Semiconductor Index (SOX) slipped in the last trading session but is up 19.3% this year. However, that trails the gains for both the Nasdaq and the S&P 500.

The smaller-cap Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. As measured by Russell 1000 indexes, growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12.08%) and Google parent Alphabet (8.44%), the latter of which recorded its largest two-day gain since 2015 between Tuesday and Wednesday.

Sector performance was also largely negative, with only communication services and consumer discretionary notching gains. Some traders also noted that, while it was a relatively quiet week in terms of market catalysts, daily trading volumes outpaced the six-month average throughout the week.

With just over two trading weeks left in 2024, the S&P 500 was on track to post back-to-back annual gains of more than 20% for the first time since 1999.

As of Friday, the S&P 500’s total return was almost 27% year-to-date; in 2023, the index finished with a more than 26% return.

Year-to-date percentage gains in other indices included the Russell 2000, up nearly 16%, while the Nasdaq Composite is up nearly 33%. At this point in the overall major trend, most stocks are stretched out, and valuations are higher than historical averages. With such a mature multi-year trend that has seen a move from SPX 3,491 on October 13, 2022, to the current record high very near 6,100, the markets may be vulnerable to pullbacks or retracements.

We will need to be quite diligent and closely monitor the markets for abrupt changes in direction going forward.

In any case, we will, as usual, be Trading What We See Technically, Not What We Think.

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Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Heading towards the year’s end, most of the major indices continue to extend their record highs.

Last week, the S&P 500 added 1%, and the Nasdaq added 3.3%. However, all is not technically as well as it might appear on the surface!

Technically, diverging and non-confirming on Friday were the DJI (-0.6%) and the Dow Transportation (TRAN) (-0.57%) indexes. Old-school basic interpretation is that the TRAN should be confirming the industrials. In the new-school interpretation, that means the NDX & SPX, in my opinion.

Advance/decline and up/down volume have been much narrower and even technically negatively diverging internally on several days in the last couple of weeks. This action needs to be paid attention to, as it may be—and often does—signal a top approaching.

In addition, we are in a time zone, cycle-wise, that appears to be indicating a possible important turn could soon take place.

Now is the time, especially near year-end, to closely re-evaluate your portfolio or trading positions for what is relatively strong and what may be weaker and trailing the indices or groups they are in.

You may need to re-adjust your thinking, make changes, raise cash, and initiate more defensive positions/hedges, etc.

However, I never advocate anticipating any impending top, as it’s always best to let the market run its course and initiate a more distinct reversal before initiating short or hedge positions. Markets nearly always go further than you think they can. You don’t want to be short and run over by a freight train, so be patient and wait for the right timing.

Of course, I’ll be keeping you abreast of any key signals taking place that may indicate that is occurring.

Until then, we’ll be technically “Trading What We See, Not What We Think.”

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