/ December 18
Daily Briefing
*The stock market closed lower, after a day of continuing selling pressure; the Russell 2000 underperformed, dropping -1.2%, while the S&P 500 (-0.4%), Nasdaq Composite (-0.3%), and Dow Jones Industrial Average (-0.6%) all suffered losses as well;
*Many names participated in a broad retreat, leading the equal-weighted S&P 500 to decline -0.8%; a pronounced retreat in chipmakers featured sell-offs in NVIDIA (NVDA, -1.2%) and Broadcom (AVGO, -3.9%), making the PHLX Semiconductor Index (SOXX) lose -1.6%; there were some bright spots in certain mega caps, including Apple (AAPL, +1.0%), Microsoft (MSFT, +0.6%), and Tesla (TSLA, +3.6%), which constitute 16% of the S&P 500 and lent support at the index level;
*SPY fell -0.41% on the day and is now closing in on its short-term support level at the 20-DMA ($601, -0.5%); the 20-DMA has previously acted as an effective support level, managing to hold in several key instances during the 2024 rally (early October and mid-November recently); failing that, the market has always completed a retracement to the 50-DMA ($590, -2.31%), which we would consider to be more meaningful at the moment; there is plenty of room to the upside for a late-December rally ($632, +4.36%);
*The MACD signal is showing continued selling pressure ahead, as it has not yet reached extensions normally associated with reversions just yet; most likely the consolidation process is set to continue;
*UnitedHealth (UNH, -2.6%) was another influential laggard, along with managed care stocks with pharmacy benefit manager divisions like CVS (CVS, -5.5%); This selling followed comments from President-elect Trump yesterday that he wants to "knock out the drug industry middle man" contributing to higher drug prices;
*However, Healthcare (XLV) only declined -0.07% on the day, being one of the relative-outperforming Sector ETFs; the sell-off has gotten so extended in medical-related industries that a rebound is more likely than not to follow;
*November Retail Sales came in at +0.7%, higher than the +0.5% expected; the key takeaway from the report is in the ex-auto number, which was up modestly and a reflection of some softening spending activity given that it is not adjusted for price changes; in other words, the overall sales increase, excluding autos, appears to be more price driven than volume driven, which is not exactly good news on the inflation front;
*Market breadth continued to deteriorate, as many stocks have now lost short term momentum — only about 28% of the market is trading above the 20-DMA; most stocks are also trading just below their 50-DMAs as well, although the measure remains robust at the 200-DMA interval;
*The breadth issue is also echoing surprisingly weak sentiment, now nearing the August and April 2024 lows; both of these instances were viable entry points once their respective correctionary processes were completed;
*From a dollar transaction volume perspective, there does appear to be ample interest in dip-buying at the moment, since liquidity is nearing record highs; spikes in volume are usually associated with the short term end of price moves rather than the beginning; in other words, there is no indication currently that lower prices would continue in the near-term, since volume is already near the top of its range;
*The 10-yr yield settled 2 basis points lower than the day before, at 4.38%; the 2-yr yield, at 4.28%, settled unchanged, at 4.24%; a $13 billion 20-yr bond reopening was met with relatively weak demand;
*TLT rose +0.24% and bounced from the critical Stop Loss level at $90; today, depending on mr. Powell’s speech at the FOMC press conference, bonds could fluctuate dramatically; we need to see a healthy rebound in government bonds at this juncture, before we can get more constructive on TLT; as a reminder, Enterprise has dropped allocation to treasuries this week;