A major stock market theme in December was sub-par market internals. In fact, more S & P 500 stocks declined vs. advanced every session of the first 14 trading days of the month. That’s an extremely long bearish streak. Despite that, the behemoth growth names continued to advance. And given that the S & P 500 is market-cap weighted, the widely popular and highly influential stocks literally helped the index hang near its all-time highs. In other words, the “average S & P 500 stock” performed a lot worse than the index. The Invesco S & P 500 Equal Weight ETF (RSP) was not shielded from December’s poor breadth showing. In fact, its 6.6% monthly decline was the worst since September 2022. Believe it or not, RSP only had two months in 2022 in which it logged worse monthly declines than this past December. That’s not an appealing comparison, but as the chart shows, RSP snapped back 6 of 7 times the next month after prior -6.5% monthly losses. The only time that this did this happen was February 2020 (COVID). So far in January, RSP is +1.3%… vs. +0.6% for the S & P 500. From a shorter-term point of view, this past Monday, RSP logged a powerful positive reversal, turning a potential decline into a strong advance. A reversal doesn’t make a trend, but it can often lead to additional upside, especially if it happens after a preceding weak trading period. All in, from its November’ 2024 high to its recent low, the equal weight S & P 500 ETF lost nearly 8.5%. Monday’s turn also happened just barely above RSP’s 200-DMA, which can be an important support line. Further, a positive momentum divergence (using the 14-Day RSI) has been in play recently, as well, with the indicator making higher lows as RSP made a new low through early Monday. In other words, this has created a compelling short-term, mean-reverting long set up, which the ETF has begun to take advantage of this week. Oversold bounces are one thing – for a more substantial up-move to happen, RSP must follow a number of key steps from here. This reflexive bounce eventually will fade, and when it does, it’s imperative to see a higher low. Why? The opposite of a higher low is a lower low, i.e., a continuation of the downtrend. Conversely, a higher low is the building block of any potential bullish formation. We’re a few steps away from that occurring, but the biggest chart formations are always preceded by volatility… like RSP just endured. It’s all about the response from here, for the RSP, said response will need to come from the non-tech sectors. So far in 2025, that’s been happening in a very noticeable way. This chart shows the distinct difference in performance and leadership among the sectors thus far in January vs. December. The bottom line is that the market has shown it can continue to advance despite which sectors are leading, but the key to the uptrend continuing is rotation. The most recent rotation took much longer to unfold than we’ve seen over the last two years, but with it arriving early in January, it’s prevented an even bigger market decline. This type of behavior will need to be replicated for the S & P 500 and RSP to regain their footing and advance further from here. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
