Technical Support Is Holding, But the Bullish Narrative Needs Work

After a rocky finish to 2024, the market is struggling to find its footing as it confronts a host of issues in 2025.

So far, the indexes have held key technical levels but have been unable to develop sustained momentum. There have been a few strong days and some pockets of speculative strength, but the bulls can’t build traction. The weak finish after a good start on Monday illustrates a key technical problem.

There have been a few signs of rotational action as the major indexes become more concentrated in a few big caps, but then the Magnificent Seven jumped like they did on Monday because they are still viewed as the safest stocks in an unstable market. While valuations in these names are stretched, investors are more concerned about relative strength and the AI narrative than they are about fundamentals.

The Russell 2000 IWM finally found support after a downtrend that lasted most of December, but it has not been able to produce a sustained bounce. Some strong action in single-digit and secondary stocks has been choppy and very short-term.

Although conditions are good for rotational action out of Mag 7 names and into the rest of the market as fourth-quarter earnings approach, so far it hasn’t been sustained. There are good values and charts outside the mega-cap technology names, but the technical action needs to improve.

Meanwhile, there is economic data coming up that may help to shake things up. The biggest economic issue is that interest rates are staying elevated. There are reports of inflationary pressures in Europe despite economic slowing, and in the U.S., hopes of a rate cut have almost disappeared. The incoming Trump Administration also adds an element of uncertainty.

There will be a mixed start on Tuesday morning with ISM Services and Job Openings number coming up.

At the time of publication, Rev Shark had no positions in any securities mentioned.