Good morning and welcome to this week’s Flight Path. The “Go” trend in equities continued again this past week and we saw a full week of uninterrupted bright blue bars. Treasury bond prices painted “Go” bars and the week ended with strong blue bars. U.S. commodities also remained in a “Go” trend with the indicator painting strong blue bars. The dollar likewise was able to hold on to its trend but we saw a string of weaker aqua “Go” bars this week.

$SPY Sees Another Strong week of “Go” bars

The GoNoGo chart below shows that price continued to rally this week as the indicator painted nothing but strong blue “Go” bars again. We do see a Go Countertrend Correction Icon (red arrow) at the most recent high which warns us that price may struggle to go higher in the short term. We see that GoNoGo Oscillator has fallen out of overbought territory and is now resting at a value of 4. There is still therefore strong momentum that is confirming the underlying “Go” trend.

On the longer term chart, the trend continues to be strong. Last week saw another higher weekly close albeit on a smaller bar. We will watch to see if price can edge higher again this week. The oscillator panel shows that momentum has been able to remain positive for several months now. It is currently at a value of 5. If momentum wanes, we will look to see if it finds support at the zero level again.

Treasury Rates Fall out of the “Go” Trend

Treasury bond yields completed the transition from a weaker “Go” to strong “NoGo” bars this week. With a couple of amber “Go Fish” bars that expressed uncertainty we can see that the “NoGo” took hold first with a pink bar. This came after GoNoGo Oscillator suggested as much when it failed to find support at the zero line just over a week ago. Now we see that momentum is negative at a value of -3 and confirms the new “NoGo” trend in price.

The Dollar Still Rests in “Go” Trend

We saw the dollar spend another week moving sideways this week and GoNoGo Trend painted a string of weaker aqua “Go” bars.  We turn our eye to the lower panel and we can see that GoNoGo Oscillator has failed to find support at zero after having been stuck there for several bars. The Oscillator has now broken out of a GoNoGo Squeeze into negative territory which tells us that momentum is out of line with the “Go” trend. We will watch to see if this leads to further price deterioration.

The markets closed with gains for the third week in a row as the key indices posted gains while extending their technical rebound. The Nifty had a trending week; it trended higher most of the week. The volatility was largely absent, but the Indices stayed quite choppy on most days except the last day, where it remained flat. The volatility stayed largely subdued; the India VIX retraced by 1.98% to 14.14 on a weekly note. The trading range stayed wider; the Nifty oscillated in an 849-point range over the past five sessions. The headline index finally closed with a net weekly gain of 546.70 points (+2.27%).

The markets have paused themselves at a crucial juncture. The Nifty has closed above the 50-DMA, which is presently at 24548. It is just a notch below the 100-DMA at 24707. This level also coincides with the 20-week MA placed at 24720 on the weekly timeframe. So, unless the Nifty closes well above 24720, we have to fairly take the zone of 24700-24750 as an immediate important resistance for the markets on a closing basis. For this technical rebound to extend, moving past and staying above 24750 would be necessary for the markets. On the other hand, the Nifty has rebounded off the 50-week MA; this level, placed at 23432, is the most crucial support for the Nifty if it has to keep the current primary trend intact.

Monday is likely to see a quiet start to the week; the levels of 24750 and 24900 are likely to act as resistance levels for the Nifty. The supports come in at 24450 and 24300 levels.

The weekly RSI is at 55.52; it is neutral and does not show any divergence against the price. The weekly MACD stays bearish and below its signal line. The PPO remains negative.

The pattern analysis of the weekly charts shows that the Nifty has completed a painful process of mean reversion. At one point, the Index was trading over 10% above the 50-week MA; the current retracement saw the Nifty testing this level a couple of weeks ago. The 50-week MA test at 23463 offered strong support, and the market rebounded from those levels. Presently, the Index has closed just below the 100-DMA and 20-week MA.

The up move after the Nifty took support at the 50-week MA has seen the Index rallying by over 1200 points. There is a possibility that Nifty may consolidate again for some time before it extends the current move. The banking and financial space is exhibiting strong relative strength. While this may continue, sectors like IT, Auto, Realty, etc., will likely show good momentum over the coming days. However, the Index is near its crucial resistance zone; this makes it necessary to guard profits at current levels. It is important that instead of chasing all up moves, the prudent thing to do would be to mindfully protect gains and stay invested in the stocks showing improvement in their relative strength. A cautious approach is advised for the coming week.

Sector Analysis for the coming week

In our look at Relative Rotation Graphs®, we compared various sectors against CNX500 (NIFTY 500 Index), which represents over 95% of the free float market cap of all the stocks listed.

Relative Rotation Graphs (RRG shows that the Nifty Bank Index has rolled inside the leading quadrant. It is expected to relatively outperform the broader markets along with the IT, Services Sector, and Financial Services Indices that are also present in this quadrant.

The Nifty Midcap 100 index is improving relative momentum while being placed inside the weakening quadrant. The Nifty Pharma Index is also inside the weakened quadrant.

The Nifty FMCG, Auto, Energy, Commodities, and Infrastructure Indices are in the lagging quadrant. The Nifty PSE Index is also in the lagging quadrant; however, it is improving its relative momentum against the broader markets.

The Nifty Media Index has rolled back inside the improving quadrant. Besides this, the Metal, Realty, and PSU Bank Indices are also placed inside the improving quadrant.

Important Note: RRG™ charts show the relative strength and momentum of a group of stocks. In the above Chart, they show relative performance against NIFTY500 Index (Broader Markets) and should not be used directly as buy or sell signals.  

Milan Vaishnav, CMT, MSTA

Consulting Technical Analyst

www.EquityResearch.asia | www.ChartWizard.ae

Chartists looking for stock setups can start with strong industry groups. The Fintech (FINX) is in a strong uptrend and leading, but looking extended short-term. While there is no setup currently, we can learn from past setups and apply these lessons to stocks within the group. 

FINX is both strong and extended. The chart shows FINX advancing 53.6% from November to March. It then moved into a long corrective period as the falling channel formed over the next five months. This correction ended with a breakout in late August and the ETF recorded its first new high in mid September. FINX extended further and led the market over the last four months.

Even though FINX shows no signs of weakness on the price chart, it is becoming quite extended because the 10-day EMA is over 20% above the 200-day EMA. The bottom window shows this difference using the PPO(10,200,0). I use this mostly as trend indicator. It turns bullish with a move above +3% and bearish with a move below -3%. These signal buffers reduce whipsaws and catch big trends.

With FINX looking extended, it is time to exercise some patience and wait for the next opportunity. The blue dashed lines show short-term bullish continuation patterns within the strong uptrend. These represent tradable pullbacks. We can use these examples as a guide in the future, and also look for tradable pullbacks individual fintech stocks.  

The indicator window shows %B, which quantifies the relationship between the close and the 20-day SMA. The pullbacks were quite mild as %B dipped below .50 just twice. This means the close was below the 20-day SMA, which is the middle line on the Bollinger Bands. A decline to the 20-day SMA signals a pullback within the uptrend and this is an opportunity, not a threat.

Extended or not, FINX is still a leader and still in a strong uptrend. This means fintech stocks provide a good hunting ground for bullish setups. Pullbacks and oversold conditions provide opportunities. This report continues at TrendInvestorPro where I feature a fintech stock with one such setup. Click here to see the full report and learn more. This week we featured tradable setups in over a dozen ETFs and stocks. 

Click here to take a trial and get two bonus reports!

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The first trading week in December started on a positive note, with the S&P 500 ($SPX) and Nasdaq Composite ($COMPQ) notching new all-time highs, while the Dow Jones Industrial Average ($INDU) pulled back slightly. Despite the small upmoves for most days, it wasn’t a quiet week.

Surprisingly, a flood of news from around the world didn’t impact equity performance much. The broader equity indexes continued their bullish trends despite South Korea briefly going under martial law, the collapse of the French government, Fed Chairman Jerome Powell’s speech, and the higher-than-expected jobs number.

The stock market’s tone is bullish, and volatility is low. The Cboe Volatility Index ($VIX) is now below 13.

This StockCharts MarketCarpets snapshot below shows the S&P 500’s weekly performance. The heavily weighted mega-cap stocks fared well, but the best weekly performer was American Airlines (AAL), with a 19.83% gain.

FIGURE 1. STOCKCHARTS MARKETCARPETS TOOL FOR DECEMBER 6. Mega-cap stocks performed well this week. American Airlines was the top performer for the week.Image source: StockCharts.com. For educational purposes.

One area to watch is the small caps. The S&P 600 Small Cap Index ($SML) broke above its trading range in early November. It then pulled back and bounced off its support level (see chart below).

FIGURE 2. DAILY CHART OF S&P 600 SMALL CAP INDEX ($SML). After breaking out of a trading range in early November, $SML pulled back and bounced off a support level. It then consolidated and broke below the consolidation range. Is it heading back to its support level?Chart source: StockCharts.com. For educational purposes.

Since November 25, the index consolidated and broke below the consolidation pattern. $SML could be on its way back to the support level between 1440 and 1450. Generally, small caps start rising mid-December and continue into the next year. This is known as the “January Effect,” so it’s likely that $SML will bounce off that support and move higher. The market breadth indicators for $SML—percentage of stocks trading above the 50-day moving average and the advances vs. decliners are also declining. I’ll be carefully watching the price action in the next few weeks.

Solid Week For Crypto

This week was a big one for cryptocurrencies. Bitcoin to US Dollar ($BTCUSD) closed above 100,000, a record close. The weekly chart below shows that $BTCUSD had a strong upward move after breaking out of its consolidation pattern from March to October.

FIGURE 3. BITCOIN SURGES. The cryptocurrency successfully closed above its 100,000 level on Friday.Chart source: StockCharts.com. For educational purposes.

The moving average convergence/divergence (MACD) is very bullish. The rise in cryptocurrency prices shows investors’ risk appetite is pretty strong.

In Other News

The broader equity indexes may have been moving up in dribs and drabs, but some stocks saw significant gains, mainly due to earnings.

Shares of Docusign (DOCU) rose on much better-than-expected earnings. Docusign’s stock price closed up by 27.86% on Friday. Lululemon Athletica, Inc. (LULU) is another stock that saw a 15.90% rise in its stock price on stellar earnings. Other retail and software companies, such as Amazon.com, Inc. (AMZN), International Business Machines (IBM), American Express Co. (AXP), and Home Depot (HD), saw significant percentage gains in Friday’s trading.

Next week, we get earnings from Adobe Systems, Inc. (ADBE), Broadcom Inc. (AVGO), Oracle Corp. (ORCL), and Costco (COST). All these stocks saw healthy gains this week. Although a big chunk of earnings is behind us, there are some exciting ones on deck.

Bond Blues in Rear-View Mirror?

Treasury yields declined while bond prices rose a little. The weekly chart of the iShares 20+Year Treasury Bond ETF (TLT) below shows TLT approaching its first resistance line. This happened before, which caught me off guard—a lesson learned. But now that bonds are creeping back up, I may give it another go.

FIGURE 4. DAILY CHART OF TLT. Bond prices are rising slowly but it may be a while before there are significant moves, given the low bond volatility.Chart source: StockCharts.com. For educational purposes.

Bond volatility is low, as seen by the ICE MOVE Index in the lower panel. This suggests that bond price movement may be small, so this time, I might wait until the next resistance level, just above $102, before I go long.

Next week is light on economic data, but we will get the November CPI and PPI. There’s also the  December 18 Fed meeting. I’d wait for these events before making investment decisions on TLT.

According to the CME FedWatch Tool, the probability of a 25 basis point rate cut at the Fed meeting is around 85%. It’s more important to hear what the Fed says about interest rate cuts for 2025. If it’s different from what the market has priced in, that will have more of an impact on the market.

End-of-Week Wrap-Up

S&P 500 up 0.96% for the week, at 6090.27, Dow Jones Industrial Average DOWN 0.60% for the week at 44,642.52; Nasdaq Composite up 3.34% for the week at 19,859.77$VIX down 5.48% for the week, closing at 12.77Best performing sector for the week: Consumer DiscretionaryWorst performing sector for the week: EnergyTop 5 Large Cap SCTR stocks: Applovin Corp. (APP); Palantir Technologies (PLTR); Reddit Inc. (RDDT); MicroStrategy Inc. (MSTR); Axon Enterprise, Inc. (AXON)

On the Radar Next Week

November Consumer Price Index (CPI)November Producer Price Index (PPI)30-Year Mortgage RateEarnings from Oracle (ORCL), Broadcom (AVGO), Adobe (ADBE), Costco (COST)

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

“The market goes up the escalator and down the elevator.” This is a quote that one of my mentors, Ralph Acampora, shared with me when I visited him years ago at his farm in Minnesota. This market truism is based on the fact that volatility tends to remain low in bull market phases, and volatility tends to spike higher during bear phases.

Why does this tend to happen? Well, when everything is going well, and investors are optimistic, they tend to slowly accumulate positions on the way up. But when investors get nervous, do they calmly and rationally begin entering sell orders? They do not. Panic ensues, selling begets further selling, and what’s known as a “waterfall decline” quickly emerges on the charts.

A number of my recent podcast interviews have included discussions of the VIX and why volatility may be the most important metric to follow. My fellow StockCharts contributor Tom Bowley (a fan of the Carolina Panthers, a team with an equally painful record to my Cleveland Browns) told me it was at the top of the list of warning signs to watch for into early 2025.

Russell Rhoads, who literally wrote the book on trading the VIX, talked in detail about the relationship between the VIX and the S&P 500. In his experience, the key was to look for the SPX to rally on higher volatility, suggesting that panic was simmering under the surface.

Let’s review three charts to track the VIX to help us identify when this low-volatility uptrend may be nearing its final stages.

Low Volatility Implies Conditions are Favorable

Since popping to one of its highest levels in history back in August, the VIX spent September and October ranging between 15 and 23. In November, the VIX came off a short-term peak around 23 and progressed down into the low teens, where we find the VIX in early December.

Now we can see that the VIX is back down to where it spent the second half of 2023 through July 2024. A volatility reading in the low teens suggests the market is “going up the escalator” and indicates the most likely path remains higher. And based on my own experience, as well as conversations I highlighted above, a spike in volatility is usually a dangerous sign no matter what the S&P 500 itself is doing at that particular point.

Looking for some last minute gift ideas for investors on your holiday list? Our Recommended Reading List could help you provide the gift of more mindful investing techniques! For those on your list that are not big on the financial markets but also super important to you, check out the “Personal Development” section at the bottom!

Comparing Volatility Between Stocks and Bonds

While many investors are familiar with the VIX to track volatility in the equity markets, far fewer are aware of the ICE MOVE index which tracks volatility for bonds. Perhaps the bond markets are signaling uncertainty that is not yet reflected in the movement of equities?

We can see a generally positive correlation between these two data series, although October saw the MOVE surging much higher than the VIX. Post-election, however, both the MOVE and the VIX have dropped in a very similar fashion. For now, the two indexes reflect a low-volatility environment for their respective asset classes. This chart has a place of honor on my Market Misbehavior LIVE ChartList because I have often found the fixed income markets to serve as a leading indicator for stocks, especially when it comes to anticipating risk-off scenarios.

High Yield Spreads Remain Quite Narrow

We can also look at the high yield or “junk” bond market to determine how that particular area of the fixed income space is performing relative to stocks. I have found that high yield spreads, measuring the gap between yields on junk bonds versus risk-free Treasury bonds, often move in tandem with the VIX.

I have plotted the ICE BofA High Yield Index Option Adjusted Spread in the top panel using an inverted scale, followed by the VIX also on an inverted scale. The inverted scales are used here because of the traditional inverse relationship between these two data series and the S&P 500 index, shown at the bottom.

Note that high yield spreads are literally at their lowest levels in years, indicating that bond investors are perceiving a low-risk environment. So bond investors are saying low risk, equity investors are saying low risk, and that means this bull market is in great shape… for now.

While all three of these charts confirm the current low volatility uptrend phase for stocks, these charts will also likely provide us with clear signals when that low volatility bull phase is over. Using these charts as a guide, we can measure when the S&P 500 is perhaps ready to “take the elevator down” in a new correction phase!

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

After a broad market review, Mary Ellen shares strategies for trading pull backs and breakouts in stocks. Highlights include a deep dive into ARK’s Innovation ETFs and their holdings, locating market strength in the process. Tune in for valuable insights and tips to help you make informed investment decisions!

This video originally premiered December 6, 2024. You can watch it on our dedicated page for Mary Ellen on StockCharts TV.

New videos from Mary Ellen premiere weekly on Fridays. You can view all previously recorded episodes at this link.

If you’re looking for stocks to invest in, be sure to check out the MEM Edge Report! This report gives you detailed information on the top sectors, industries and stocks so you can make informed investment decisions.

Growth vs Value Rotation, the pendulum swings again

Relative Rotation Graphs (RRG) are not only good for visualizing sector rotation, but they are also valuable tools for visualizing other market dynamics. For example, the relationships between Growth and Value stocks or Large-cap vs. mid- and Small-cap stocks and the combination of these two breakdowns of the market.

The pure growth-value rotation, as shown in the RRG above, RRG tells an interesting story.

Value had its moment in the sun from August to early October, but the tides have turned since then.

Around the week ending Sept 27, the value tail started to roll over while still inside the improving quadrant and the growth tail did the opposite inside the weakening quadrant. Basically signaling the end of a temporary countertrend move.

Now, it’s clear that growth is once again beating value.

Size Matters: Small and Mid-Caps Take Center Stage

When we add the RRG showing rotations of large, mid, and small-cap stocks, the picture becomes even clearer.

Small and mid-cap stocks are still gaining relative strength in the leading quadrant.

Meanwhile, large caps are languishing in the lagging quadrant, continuing to lose ground.

A More Granular Look: Where the Action Is

Now, let’s get into the nitty-gritty. We get a more nuanced view by combining the breakdown of the US stock universe into growth and value with large, mid, and small caps.

The resulting RRG with six tails, three for growth and three for value broken down into three size segments, paints a vivid picture:

Mid and small-cap growth stocks are the clear leaders, deep in the leading quadrant and heading further into it.

Value small-cap and mid-cap stocks on the right side of the graph are holding their own, although they are losing some relative momentum.

Both the large-cap tails inside the lagging quadrant show this segment’s current weakness. Still large cap growth has just started to curl back up a bit while large cap value continues to head South-West.

This means that large-cap value is now the weakest segment in the market. Inside the lagging quadrant and traveling on a negative RRG-Heading.

What This Means for Investors

Large-caps in general, particularly large-cap value, are best avoided for now.Small-cap and mid-cap growth stocks deserve your attention — they’re where the action is.

Market Outlook: Steady as She Goes

Despite these rotations, the overall outlook for the stock market in the coming weeks remains healthy.

The S&P 500 chart shows the rhythm of higher and lower lows is intact. Divergences causing concern have been negated, and breadth metrics have normalized—they’re no longer sending too many negative signals.

#StayAlert and have a great weekend. –Julius

Industrials (XLI) benefited greatly from the “Trump Trade”, but fell back to digest the gap up rally. It rallied again but failed after overcoming overhead resistance at the prior November top. Now it is pulling back once again and that has formed a bearish double top formation. The bearish double top’s minimum downside target would bring price down to the next level of support around 132.00.

To add insult to injury, on Thursday it saw a Price Momentum Oscillator (PMO) Crossover SELL Signal. Participation has been sinking since the last top and while percentages of stocks above key moving averages are above our bullish 50% threshold, clearly the sector is breaking down while the SPY makes new all-time highs.

Further issue is the negative divergence on the Silver Cross Index. It is also below its signal line so the IT Bias is BEARISH. Relative strength is being sucked out of the sector right now.

Conclusion: Industrials (XLI) may’ve benefited from the election, but the shine has worn off the trade. More stocks are losing support at key moving averages and the IT Bias is BEARISH. This is a sector we likely want to avoid given the downside target of the double top formation is around 132.00.

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Bear Market Rules

Could we see a short-term shift towards defensive sectors? Real estate? Utilities? I haven’t uttered these words in awhile. And why should I as our major indices have forged into new all-time record high territory? Well, I’m only talking about very near-term, maybe the next 1-3 weeks? I wouldn’t change a thing as a long-term investor, I’d simply stay the course with more aggressive areas. But here are a few things that short-term traders might consider:

Seasonality

December has been a very strong month for U.S. equities, with the S&P 500 rising an astounding 55 of 74 years (74%) since 1950. That represents the most monthly advances of ANY calendar month, topping April (53) and November (51), two extremely bullish months as well. There’s more, however. Defensive groups tend to lead equities higher in December and THAT is different. If we look back the last 12 years (since this secular bull market was confirmed in April 2013), here are the average December returns for each sector, relative to the S&P 500 and prior to December 2024 (the %s in parenthesis represent December 2024 returns mid-day Friday):

Real estate (XLRE): +1.4% (-3.3%)Utilities (XLU): +1.2% (-3.4%)Consumer staples (XLP): +0.9% (-1.2%)Health care (XLV): +0.7% (-2.3%)Financials (XLF): +0.5% (-2.5%)Materials (XLB): +0.4% (-3.4%)Communication services (XLC): +0.1% (+0.9%)Industrials (XLI): +0.0% (-2.8%)Technology (XLK): +0.0% (+1.9%)Energy (XLE): -0.5% (-3.8%)Consumer discretionary (XLY): -0.8% (+1.9%)

Thus far, in the first week of December 2024, seasonality is turned on its head. Will December 2024 simply be a strange year where we see aggressive sectors perform well all month? Or will “normal” December seasonality kick in and we see a quick rotation back towards defensive sectors?

Positive Divergences and Key Support

I believe there’s a reasonable chance of a reversal in defensive sectors back to the upside next week. Take a look at 60-minute charts of all the defensive sectors:

XLRE:

XLRE’s PPO is beginning to turn higher, just as it tests its 4-week uptrend line. If we see another low in price, it’s quite likely that a positive divergence will result, indicative of slowing downside price momentum. That, along with XLRE’s propensity to lead the market in December, has me interested in a quick trade. Seeing a reversal to the upside first would be a welcome sign. I’d at least be watching the action here over the next week.

XLU:

The XLU already has printed a positive divergence, suggesting a potential 50-hour test in the 81.00-81.50 area. Again, realizing utilities typical December leadership, I’m watching for a reversal.

XLP:

XLP looks solid after printing a bullish cup with handle continuation pattern. Consumer stocks have been strong, especially consumer discretionary (XLY). But XLP likes December, so we’ll see if it can outperform the XLY for a brief period.

XLV:

Ok, I’m not seeing much bullishness here. I have recently discussed the long-term support on XLV near the 137 level, prior to the latest bounce from 140. Currently, however, I see a bearish PPO crossover and no solid price support nearby. There’s a gap support level just above 144 that might hold, but otherwise, XLV could be poised for a return visit to 140.

Historical Annualized Returns By Day By Major Index

While December is a bullish month for our major indices, we are rapidly approaching the worst period within December. We break down the strong and weak periods for our EarningsBeats.com subscribers every month in our EB Monthly Seasonality Report and we provide upcoming daily annualized performance numbers in our EB Weekly Market Report (WMR). Our latest WMR highlighted the following daily annualized returns for the first half of December on the S&P 500, NASDAQ, and Russell 2000:

S&P 500 (since 1950)

Dec 2: +20.80%Dec 3: -37.54%Dec 4: +34.45%Dec 5: +36.61%Dec 6: +44.90%Dec 7: +22.82%Dec 8: +16.37%Dec 9: -7.56%Dec 10: +9.26%Dec 11: -41.19%Dec 12: +2.75%Dec 13: -0.12%Dec 14: -62.95%Dec 15: -17.54%

NASDAQ (since 1971)

Dec 2: +39.30%Dec 3: -54.04%Dec 4: +22.34%Dec 5: +99.62%Dec 6: +13.03%Dec 7: +1.36%Dec 8: +53.51%Dec 9: -69.02%Dec 10: +53.82%Dec 11: -86.19%Dec 12: -14.96%Dec 13: -61.84%Dec 14: -109.19%Dec 15: -29.80%

Russell 2000 (since 1987)

Dec 2: +121.88%Dec 3: -26.06%Dec 4: +32.13%Dec 5: +136.88%Dec 6: +48.07%Dec 7: -26.09%Dec 8: +93.55%Dec 9: -90.45%Dec 10: -18.96%Dec 11: -104.36%Dec 12: +16.47%Dec 13: -38.62%Dec 14: -87.43%Dec 15: -36.23%

The first week of December held true and was very bullish, especially the large cap growth stocks that drove outperformance in both the S&P 500 and NASDAQ.

Beginning on December 9th (Monday), though, we have seen plenty of historical weakness. This does NOT guarantee us lower prices next week. I’m simply pointing out historical tendencies. I remain cautiously bullish in the upcoming week, but absolutely believe our major indices are heading higher in time. This can mean different things to different traders. But with this type of historical weakness, I will avoid leveraged products on the long side and I’ll likely trade stocks in defensive sectors as well as stocks in aggressive sectors, just to hedge a bit.

Big Picture Rotation and a HUGE Event

NOTHING is more important than following rotation and understanding where Wall Street is positioning and re-positioning. Nothing will help your trading success more than following this rotation and taking advantage of it. That’s why we’re hosting a completely FREE event on Saturday, December 14th at 10:00am ET, “Key Market Rotation Heading Into 2025”. Who better to invite to join me than Julius de Kempenaer, the creator of Relative Rotation Graphs (RRG) charts, Sr. Technical Analyst as StockCharts.com, founder of RRG Research, and host of “Sector Spotlight” on YouTube? Julius and I would love for you to join us as we debate the merits of owning various asset classes, sectors, industries, and individual stocks in 2025. In particular, we’ll address the outlook for the Mag 7 stocks like AAPL, NVDA, and others. For more information and to register for this very timely topic, CLICK HERE! Keep in mind that ALL those who register will receive a recording of the event. So if you can’t make the event live, no worries at all!

Happy trading!

Tom

The secret sauce of 1-2-3 investing is quite simple: don’t skip Step 2. Far too many investors who’ve succeeded in creating wealth are anxious to rush forward with “all gas, no brakes” to embrace the excitement of Step 3 – Asset Growth. Only in retrospect do they so often discover the hard way that the essential connective tissue between asset creation and asset growth is the imperative prerequisite of asset protection (see our book Tensile Trading, Chapter 1, page 2).

Now more than ever in my five decades of managing my assets do I implore you to build your personal investment citadel based on a protection mantra. You absolutely must curtail your impulses to speed forward without building a solid asset protection foundation first. Your future financial prosperity depends on it.

This blog is not intended to focus on all those asset protection specifics. We’ve offered all that in much detail in our book (Tensile Trading). This blog is meant to raise the alarm as to the recent seismic increase of risks I see these days associated with investing our portfolios. I’m certain we can all recount numerous examples of Ponzi schemes, shady derivatives, and an infinite variety of “alternative investments” that have fleeced individual investors and even sophisticated money management firms. Those risks not only continue to exist, but are ever more clever and seductive. And it’s the risks in the “trendy” asset category of “private equity” that has me particularly worried.

The tsunami of money flooding into the private equity space now deems it ripe for operators on the Dark Side to take up residence there, even more than they have in the past. There are many reasons for all this new money chasing a finite universe of private equity deals. One of the most significant catalysts is that large Mutual Fund companies are desperate to stem the flow of assets out of their respective fund complexes and believe that presenting investors the opportunities to invest in private equity will help stem that negative flow. Oh yes, perhaps the higher fees might also have something to do with it!

Recently, I experienced this phenomenon firsthand. In thirty years as a Vanguard client, I’d never had a phone call pitching me financial products. They recently called to suggest I put assets into private equity.

This is not a sermon about whether private equity investing is right for you or not, but I do beseech you to understand all aspects of liquidity — in other words, how long are you required to hold it. This is a financial sermon about my perception that risks are everywhere and risks are escalating. Let me share four personal data points to support this.

I recently attended an anniversary dinner for a large money management firm whose success in private equity investing is undisputed. As the various speakers revisited their historical successes, I was struck by their strategy for the future. They have deemed it necessary to hire a highly respected forensic scientist to head a sizable due diligence department within the firm. In today’s financial arena, digging deep into the backgrounds of every potential deal is imperative and non-negotiable. They claimed that an extensive percentage of potential deals where the numbers alone would have Warren Buffett salivating were in fact abandoned due to “dark side discoveries during due diligence.” My point is that with too much money chasing fewer private equity deals, not all the money managers will be inclined to execute such deep and meticulous due diligence. It’s the investors who will inevitably pay the price.

My second data point is the number of financial advisors I see who are outright misleading. It’s common for me to pickup on their gaslighting techniques where they attempt to manipulate investors and their perceptions of reality. In The Wall Street Journal, Jason Zweig amplified on this by labeling it as “trust washing.” Rather than earning your trust the hard way, these shady manipulators attempt to buy trust by claiming they were seen on TV, quoted in respected periodicals or written popular investment books — thereby crowning themselves as trustworthy financial gurus. To convince yourself, just google how many financial advisors have been convicted and are serving jail terms. I was stunned.

I spoke to a good friend recently who is a tech executive. I didn’t want to push him for specifics, but he told me that based on their experiences in the past, Google now has a corporate policy of “Zero Trust.” Sounds bloody ominous to me. As individual investors, perhaps our mantra needs to be the same.

Finally, the recent front page article in The Wall Street Journal about Morgan Stanley (MS) and their collection of corrupt and nefarious clients was daunting and disturbing. Yes, MS is motivated by profits to collect assets — hence weak controls and poor due diligence should not be surprising. What was shocking to me was that an audit revealed the large percentage of their clients who were deemed to be extremely high-risk. In other words, clients leaning towards the dark side.

In summary, today’s financial reality is such that we individual investors don’t have the tools necessary to vet sophisticated complex investments sufficiently. In my opinion, we should not venture down that road with anything but a small percentage of our assets. Call it your “high risk” allocation or perhaps your “funny money fund.” The S&P 500 (SPY) basket of stocks is a far more dependable asset growth vehicle which is diversified, pays dividends, offers growth and lovely liquidity. These are benefits that should should not be underestimated by you.

I plead with you to steer clear of the “all gas, no brakes” investment tendencies. Embrace the mantra of asset protection before asset growth. Your future self will thank you!

Trade well; trade with discipline!

Gatis Roze, MBA, CMT

StockMarketMastery.com

Author, “Tensile Trading: The 10 Essential Stages of Stock Market Mastery” (Wiley, 2016)Developer of the “Stock Market Mastery” ChartPack for StockCharts membersPresenter of the best-selling “Tensile Trading” DVD seminarPresenter of the “How to Master Your Asset Allocation Profile DVD” seminar