OVERBOUGHT SPX TESTS OLD HIGH -- SMALLER STOCKS HAVE BROKEN OUT -- HEALTHCARE LOOKS PROMISING IN NEW YEAR

S&P 500 TESTS OLD HIGH... A lot of attention is being paid to the S&P 500 which is in the process of testing its record high.   That can be seen in Chart 1.   In addition, its 14-day RSI line is in a very overbought condition.   That raises the possibility that the SPX may experience a pullback around its old high.   The fact that the Santa Clause rally (last five days of the old year and the first two of the new year)  ends next week may also cause some short-term profit-taking.  A look at some other indexess, however, shows more strength in other areas.  Chart 2 shows the  S&P Equal Weighted Index having just broken out to a new 52-week high and still a distance below its record high.    That suggests that there's probably more room to rally.  Most of that strength is coming from smaller stocks.

SMALLER STOCKS HAVE BROKEN OUT...Chart 3 shows the S&P Mid Cap Index climbing above its 2023 highs to  reach the highest level in nearly two years. Chart 4 shows the S&P 500 Small Cap Index doing the same.   Prior to those upside breakouts, concern that the large cap rally was too narrow kept investors in a more cautious mood.    The fact that smaller stocks have joined the rally in larger stocks is a more positive sign that the rally has broadened out.

HEALTHCARE SECTOR LOOKS PROMISING FOR 2024...  As one year ends and another one starts, stock analysts start looking for weaker sectors that lagged in the old year and hold promise of better performance in the new year.  The three weakest sectors in 2023 have been utilities (-1%), consumer staples (-1%), and energy (-7%).  None of them have very promising chart patterns for the new year.   Healthcare was the fourth weakest sector with a relatively small gain of +2%.   But it's chart pattern does appear more promising.   Chart 5 shows the  Health Care SPDR (XLV) spending the last year in a relatively flat pattern.   Over the last month, however, the XLV has risen to the highest level of the year (green circle).   That upside breakout may be a positive sign that 2024 will be a better year for healthcare.