A major theme in the stock market in December was below-average conditions within the market. In fact, the number of declining and advancing S&P 500 stocks has increased on each of the first 14 trading days of the month. This is an extremely long-term bearish trend. Still, behemoth growth stocks continue to rise. Given that the S&P 500 is weighted by market capitalization, popular and highly influential stocks have really helped keep the index near all-time highs. In other words, the “average performance of S&P 500 stocks” is significantly worse than the index. The Invesco S&P 500 Equal Weight ETF (RSP) was not immune to December’s poor performance. In fact, its 6.6% monthly decline was the worst since September 2022. It’s not an attractive comparison, but as the chart shows, RSP recovered 6 out of 7 times over the next month after previously losing -6.5% per month. The only time this happened was February 2020 (COVID-19). So far in January, the RSP is +1.3%… while the S&P 500 is +0.6%. progress. A reversal does not form a trend, but it often brings additional upside, especially if it occurs after a previous weak trading period. All told, the equal-weighted S&P 500 ETF fell nearly 8.5% from its November 2024 high to its recent lows. Monday’s move also occurred just above the RSP’s 200-day moving average, which could serve as an important line of support. Additionally, a positive momentum divergence (using the 14-day RSI) has also been at play recently, with the indicator also setting higher lows as the RSP set new lows early Monday. In other words, this creates a compelling short-term mean reversion long structure that ETFs have begun to exploit this week. An oversold bounce is one thing – in order to achieve a larger move higher, the RSP must follow some key steps on top of it. This reflexive rally will eventually subside, and when it does, higher lows will have to be seen. Why? The antonym of a higher low is a lower low, which is a continuation of a downtrend. Conversely, higher lows are the building blocks of any potential bullish pattern. We are just a few steps away from this happening, but the biggest chart formations are always preceded by volatility… like what RSP just experienced. For the RSP, it all depends on the response here, saying the response needs to come from non-tech industries. By 2025, this is happening in very dramatic ways. This chart shows the clear differences in performance and leadership across industries in January and December so far. The bottom line is that despite which sectors are leading, the market has shown it can continue to rise, but the key to a sustained upward trend is rotation. The latest rotation took much longer to unfold than the past two years, but with the rotation in early January, it avoided a more severe market decline. The S&P 500 and RSP need to replicate this behavior to regain their footing and advance further. — Frank Cappelleri Founder: https://cappthesis.com Disclosure: (None) All opinions expressed by CNBC Pro contributors are theirs alone and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliates, and they may have been previously broadcast on television, radio, online or other media. The above is subject to our Terms and Conditions and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not apply to your particular situation. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. Click here to view the complete disclaimer.
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