Week of Dec 08 2024

Several sector divergences have also emerged that warrant close attention. The semiconductor sector, often viewed as the "new transports" for economic health, has seen its Relative Trend Score cycle from 10 to 0, a pattern that historically preceded significant pullbacks. Similarly, healthcare stocks have reached a rare milestone with less than 50% trading above their 200-day moving average while the broader market maintains 75% above - a divergence seen only nine times in 70 years, with past instances coinciding with major sector-specific challenges.

Near-term technical dynamics remain supportive, with dealer gamma positioning around $10.7B per 1% move creating stability. However, this stability could be tested as 87% rolled off on Friday, potentially increasing volatility into year-end. The VIX's recent drop below 14 after exceeding 20 has historically been a positive signal, with markets higher 96% of the time 12 months later. Last-hour buying pressure has been notably strong, with nine of the last ten sessions showing positive final-hour performance.

The most significant tail risks center on the potential unwinding of speculative excesses, particularly given insider selling signals turning neutral from favorable, and the possibility that stronger-than-expected economic data could delay anticipated rate cuts. The market's extreme deviation from trend suggests increasing vulnerability to reversals, though historical precedent suggests a final "overshoot" phase may still lie ahead as systematic strategies remain below 90th percentile exposure levels.

Key catalysts ahead include:

• December CPI report
• Multiple central bank meetings in addition to December FOMC (RBA, BOC, ECB, SNB)
• China's Economic Work Conference with expected fiscal stimulus
• Key earnings from Oracle, Adobe, Broadcom, and Costco
• December 20th corporate buyback blackout window