Might we see a short-term shift in direction of defensive sectors? Actual property? Utilities? I have never uttered these phrases in awhile. And why ought to I as our main indices have cast into new all-time document excessive territory? Effectively, I am solely speaking about very near-term, perhaps the following 1-3 weeks? I would not change a factor as a long-term investor, I might merely keep the course with extra aggressive areas. However right here are some things that short-term merchants would possibly contemplate:

Seasonality

December has been a really robust month for U.S. equities, with the S&P 500 rising an astounding 55 of 74 years (74%) since 1950. That represents essentially the most month-to-month advances of ANY calendar month, topping April (53) and November (51), two extraordinarily bullish months as effectively. There’s extra, nonetheless. Defensive teams have a tendency to steer equities increased in December and THAT is totally different. If we glance again the final 12 years (since this secular bull market was confirmed in April 2013), listed below are the typical December returns for every sector, relative to the S&P 500 and previous to December 2024 (the %s in parenthesis signify December 2024 returns mid-day Friday):

• Actual property (XLRE): +1.4% (-3.3%)
• Utilities (XLU): +1.2% (-3.4%)
• Shopper staples (XLP): +0.9% (-1.2%)
• Well being care (XLV): +0.7% (-2.3%)
• Financials (XLF): +0.5% (-2.5%)
• Supplies (XLB): +0.4% (-3.4%)
• Communication companies (XLC): +0.1% (+0.9%)
• Industrials (XLI): +0.0% (-2.8%)
• Expertise (XLK): +0.0% (+1.9%)
• Vitality (XLE): -0.5% (-3.8%)
• Shopper discretionary (XLY): -0.8% (+1.9%)

To date, within the first week of December 2024, seasonality is turned on its head. Will December 2024 merely be a wierd yr the place we see aggressive sectors carry out effectively all month? Or will “regular” December seasonality kick in and we see a fast rotation again in direction of defensive sectors?

Optimistic Divergences and Key Assist

I consider there is a affordable probability of a reversal in defensive sectors again to the upside subsequent week. Check out 60-minute charts of all of the defensive sectors:

XLRE:

XLRE’s PPO is starting to show increased, simply because it assessments its 4-week uptrend line. If we see one other low in value, it is fairly seemingly {that a} optimistic divergence will end result, indicative of slowing draw back value momentum. That, together with XLRE’s propensity to steer the market in December, has me inquisitive about a fast commerce. Seeing a reversal to the upside first could be a welcome signal. I might not less than be watching the motion right here over the following week.

XLU:

The XLU already has printed a optimistic divergence, suggesting a possible 50-hour take a look at within the 81.00-81.50 space. Once more, realizing utilities typical December management, I am waiting for a reversal.

XLP:

XLP appears to be like strong after printing a bullish cup with deal with continuation sample. Shopper shares have been robust, particularly client discretionary (XLY). However XLP likes December, so we’ll see if it may outperform the XLY for a quick interval.

XLV:

Okay, I am not seeing a lot bullishness right here. I’ve just lately mentioned the long-term assist on XLV close to the 137 stage, previous to the most recent bounce from 140. Presently, nonetheless, I see a bearish PPO crossover and no strong value assist close by. There is a hole assist stage simply above 144 which may maintain, however in any other case, XLV could possibly be poised for a return go to to 140.

Historic Annualized Returns By Day By Main Index

Whereas December is a bullish month for our main indices, we’re quickly approaching the worst interval inside December. We break down the robust and weak intervals for our EarningsBeats.com subscribers each month in our EB Month-to-month Seasonality Report and we offer upcoming every day annualized efficiency numbers in our EB Weekly Market Report (WMR). Our newest WMR highlighted the next every day annualized returns for the primary 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 primary week of December held true and was very bullish, particularly the big cap progress shares that drove outperformance in each the S&P 500 and NASDAQ.

Starting on December ninth (Monday), although, now we have seen loads of historic weak point. This does NOT assure us decrease costs subsequent week. I am merely stating historic tendencies. I stay cautiously bullish within the upcoming week, however completely consider our main indices are heading increased in time. This may imply various things to totally different merchants. However with this sort of historic weak point, I’ll keep away from leveraged merchandise on the lengthy facet and I will seemingly commerce shares in defensive sectors in addition to shares in aggressive sectors, simply to hedge a bit.

Massive Image Rotation and a HUGE Occasion

NOTHING is extra necessary than following rotation and understanding the place Wall Road is positioning and re-positioning. Nothing will assist your buying and selling success greater than following this rotation and profiting from it. That is why we’re internet hosting a totally FREE occasion on Saturday, December 14th at 10:00am ET, “Key Market Rotation Heading Into 2025”. Who higher to ask to hitch me than Julius de Kempenaer, the creator of Relative Rotation Graphs (RRG) charts, Sr. Technical Analyst as StockCharts.com, founding father of RRG Analysis, and host of “Sector Highlight” on YouTube? Julius and I’d love so that you can be part of us as we debate the deserves of proudly owning numerous asset lessons, sectors, industries, and particular person shares in 2025. Particularly, we’ll tackle the outlook for the Magazine 7 shares like AAPL, NVDA, and others. For extra info and to register for this very well timed subject, CLICK HERE! Remember the fact that ALL those that register will obtain a recording of the occasion. So if you cannot make the occasion reside, no worries in any respect!

Completely satisfied buying and selling!

Tom