EB Daily Market Report - Brief Update - Thursday, December 12, 2024

The historical weakness that I discussed a week or so ago - indicating that our major indices often struggle from December 9th through December 15th - seems to holding the market back once again.

Today is nearly a replay of much of this week. We're seeing some outperformance by the NASDAQ 100 and S&P 500, while small caps (IWM) and mid caps (MDY) lag. There is one difference, however. The IWM and the MDY have lost rising 20-day EMA support. Below are 2 IWM charts, the first an hourly chart that highlights the ETF's current down channel that has now spanned 13 trading days. The second is a daily chart highlighting what appears to be a violation of 20-day EMA support (barring a final hour reversal):

IWM - hourly:

It's very difficult to say when the IWM will break this down channel. Rather than try to predict it, I'll simply be watching for it to happen.

IWM - daily:

While I don't like seeing the IWM lose its 20-day EMA support, the bottom panel shows small cap growth stocks ($DJUSGS) continuing to outperform small cap value stocks ($DJUSVS). While never a guarantee, the fact that small cap growth has broken out on a relative basis vs. small cap value, clearing all previous relative tops since March 2024, suggests to me that we have much further upside to go. In other words, this pullback is being led by value with further rotation into growth. That's been the case since the Fed started cutting the fed funds rate.

While many are pointing to today's higher than expected "headline" PPI number, which came in at +0.4% vs. the expected +0.3%, the fact that growth stocks continue to lead tells me that Wall Street is completely ignoring this data and doesn't find it useful at all. I said the same thing yesterday. I'm much more interested in what's happening at the consumer level (CPI) vs. what's happening at the producer level (PPI). Furthermore, if we strip out volatile food and energy prices, Core PPI came in as expected at +0.3%.

In my opinion, there's nothing here that suggests to me that the Fed will alter its rate-cutting campaign when it meets next week and likely announces another 25-basis point rate cut on Wednesday, December 18th.

Happy trading!

Tom