As we move into a particularly favorable season for the stock market, spanning from December 19, 2024, to January 2, 2025, it’s important to highlight the recent struggles facing the average stock and a range of sectors since late November. Some analysts point to tax-loss selling as a likely cause, which holds some validity. However, with certain sectors and indices dropping from their peak levels this year—or even all-time highs—it’s clear there are other factors at play since tax selling doesn’t apply there. On Tuesday, the breadth of the New York Stock Exchange (NYSE) was notably negative at -1,611, continuing a trend of weak breadth. The 12-day NYSE advances-to-total issues ratio has dipped to 39%, marking one of the weakest points we’ve seen in the past two years. Consistently, the NYSE, S&P 400, and S&P 600 indices have been among the weakest.
Taking a closer look, we find some intriguing Commitment of Traders (COT) data, alongside other data that could be considered concerning, varying by market. As we previously discussed, the overall hedger positions in major indices have adopted a bearish stance. This becomes evident when examining the S&P 500 and Nasdaq 100—both show that “smart money” hedgers are holding futures positions that are decidedly bearish, aligning with or nearing their most negative stances. On the flip side, large speculators, including hedge funds and momentum-driven investors, are significantly bullish in their futures positions.
