STOCKS END WEAK DECEMBER UNDER PRESSURE: NASDAQ HAS REACHED ITS AUTUMN LOW; SECTOR RANKING REMAINS DEFENSIVE
STOCKS END YEAR UNDER PRESSURE...
Little has changed since the last message written a couple of weeks ago. At that point, major stock indexes had failed a test of overhead resistance levels and were starting to weaken. They've weakened even further since then. Chart 1 shows the Dow Jones Industrial Average ($INDU) trading well below resistance at its August peak and sitting on its 200-day moving average (MA). The other two major stock indexes have performed much worse. Chart 2 shows the S&P 500 index ($SPX) trading below its 50-day MA after failing a test of its 200-day MA line earlier this month. The tech-driven Nasdaq market has been the weakest of the three.
Chart 3 shows the Nasdaq Composite ($COMPQ) having already reached the lows formed during October and November. From a seasonal standpoint, stocks have a history of ending the year on a stronger note. That hasn't happened this year with stocks losing ground during December. Sector rotations also remain in a more defensive mode.
CHART 1: THE DOW JONES INDUSTRIAL AVERAGE IS TRADING BELOW RESISTANCE.
Chart source: StockCharts. For illustrative purposes only.
CHART 2: S&P 500 TRADING BELOW ITS 50- AND 200-DAY MOVING AVERAGE.
Chart source: StockCharts. For illustrative purposes only.
CHART 3: THE NASDAQ COMPOSITE IS ALREADY SITTING AT ITS LOWS.
Chart source: StockCharts. For illustrative purposes only.
Sector Rankings Remain Defensive
Chart 4 shows sector performance during December is still in a defensive mode. The month's three top sectors are Utilities, Health Care, and Consumer Staples. All three are defensive in nature. The two weakest sectors are Consumer Discretionary and Technology. Technology weakness explains the poor performance in the Nasdaq. Weakness in Consumer Cyclicals is especially worrisome.
CHART 4: S&P SECTOR PERFORMANCE. The top three sectors in December 2022 are Utilities, Health Care, and Consumer Staples. This indicates that investors are in defensive mode.
Chart source: StockCharts. For illustrative purposes only.
Consumer Staples vs. Cyclicals
Chart 5 compares the relative performance of Consumer Discretionary Select Sector SPDR (XLY) and Consumer Staples Select Sector SPDR (XLP) over the last year. What's especially noteworthy is their different paths during the fourth quarter. While economically-sensitive consumer discretionary stocks (XLY) have fallen to new lows, defensive consumer staples (XLP) have had a relatively strong fourth quarter. That's just another sign that the stock market is ending the year on weak technical footing. And that doesn't show much optimism heading into the new year.
CHART 5: CONSUMER STAPLES VS. CONSUMER DISCRETIONARY. Consumer Staples is ending on a stronger note than Consumer Discretionary.
Chart source: StockCharts. For illustrative purposes only.
