Whenever the market enters a corrective wave, regardless of the magnitude and time, section rotation comes into play.

While we haven't seen any signs of defensive rotation yet, there's movement beneath the surface worth paying attention to.

The chart of the equal-weighted S&P 500 $RSP relative to the market-cap-weighted S&P 500 $SPY can provide valuable insights. 

It gives us a read on future leadership trends and helps guide how we position ourselves in various vehicles and themes.

The market’s been a hot mess this past month. Failed breakouts are piling up, with prices slipping back into their ranges and falling below key overhead supply zones.

Beneath the surface, the average drawdown for S&P 500 stocks stands at 18.2%, and the weakness is spreading across major sectors and industry group indexes.

It began with lagging areas like metals and mining, which have already rolled over, and now, groups such as banks are breaking below their prior cycle highs.

Let’s break down the choppy action and highlight the struggles across various groups to hold their breakouts.

Let’s start with the Equal-Weight Consumer Discretionary $RSPD:

The market of stocks has been a chop fest for the past month, prompting me to keep a close eye on market internals.

While trends in the major indexes remain unaffected, short-term weakness has been steadily creeping in beneath the surface.

The average 52-week drawdown of S&P 500 stocks has reached -18.2%. This means the average stock is experiencing its sharpest decline in over a year.

While the uptrends in the major indexes are holding up well, it's been a tale of mixed signals beneath the surface.

Some sectors and groups are showing strength, while others continue to lag behind.

Banks, for that matter, are an important piece of the puzzle. They are the backbone of the financial sector. They are some of the most important businesses for the US and global economy. 

How bank stocks perform gives us a good read on where the broader market is headed.

The SPDR S&P Banks ETF $KBE took a shot at breaking out of this monster base following November’s election. This marks the second attempt at reclaiming its pre-GFC highs in the past few years.

In a healthy bull market, you want to see offensive groups performing well. When these groups lack strength, it often signals problems ahead for the broader market.

Homebuilders, one of the most cyclical subsectors within the Consumer Discretionary space, come to mind when discussing this theme. 

They are a reliable gauge of global growth and investor risk appetite.

Historically, when these stocks trend higher, it reflects an environment conducive to risk-seeking behavior. On the flip side, sustained selling pressure on them tends to indicate a more cautious market stance.

When we overlay the SPDR S&P Homebuilders ETF $XHB with the S&P 500 $SPY, they typically follow the same path.

It’s hard to ignore the strength coming out of Argentina this past year.

The MSCI Argentina ETF $ARGT has been an absolute beast, finishing 2024 as the best-performing country ETF, with a jaw-dropping gain of 63.50%.

The series of higher highs and higher lows remains firmly intact, and it doesn’t look like the trend will change anytime soon.

Javier Milei’s ascent to the presidency in November 2023 has been a key driving force behind this recent surge.

His free-market policies, emphasis on entrepreneurship, and commitment to economic growth have been a game-changer, attracting investor attention from every corner of the globe.

Quantum computing stocks have been on an absolute tear, making this group one to watch closely as we head into 2025.

These companies are pushing the boundaries of what’s possible, solving problems and processing workflows traditional computers never could.

From AI and cybersecurity to drug discovery, quantum computing has emerged as a critical driver of innovation. And with plenty of public companies operating in the space, quantum stocks offer an exciting investment opportunity.

IonQ $IONQ stands out as a leader in this revolution, fueling a surge of investor enthusiasm.

I remember when Sam highlighted it in our Freshly Squeezed report back in March last year.

What started as a promising pick has since turned into a major market leader.

When assessing risk appetite and the health of the market, several approaches come to mind. One of my favorites is comparing Consumer Discretionary stocks with their Consumer Staples counterparts.

Discretionary stocks represent products or services consumers spend their "extra" income on—like leisure activities, retail, and other non-essential goods.

In contrast, Staples are those companies whose products and services we continue purchasing regardless of economic conditions. These include essentials like toothpaste, laundry detergent, beer, soda, and cigarettes.

Historically, Staples outperform significantly when markets face pressure, which makes sense given their necessity-driven demand.

As 2024 comes to a close, I want to take a moment and share some of the most important lessons I learned this year.

Here are ten of them, in no particular order.

1. Skin in the Game: Don’t be afraid to trade—there are no excuses not to start. Today’s world offers countless platforms and opportunities with low barriers to entry. While this field demands a willingness to take risks, you don’t need to invest everything at once. If fear of loss is holding you back, begin with a small portion of your capital. Taking that first step is essential, as true learning only happens through action and experience.

2. Embrace Relative Strength: By identifying and buying the strongest performers in the market, you position yourself to capture alpha and ride the momentum of the true leaders.

With the year coming to a close, I want to share what I believe is the most important chart to consider as we head into 2025.

When it comes to the most critical stocks, it's all about tech. This has been the case for at least the last decade and a half.

Mega-cap tech not only dominates U.S. indexes, but these stocks also play a major role in most investors' portfolios.

The same is true for semiconductors, which serve as both a benchmark for the technology sector and a barometer for the broader market. They are also the posterchild of the ongoing AI revolution.

By evaluating relative trends, we gain insight into leadership and can also assess the market's overall health.

Take a look at the long-term view of Technology $XLK and Semiconductors $SOX relative to the S&P 500 $SPX.

Higher highs and higher lows are what make an uptrend. When that stops being the case, it's time to reassess.

Let's step back and take a look at the Dow Jones Industrial Average. The diverse mega-cap index makes a great benchmark for the broader market.

Right now, the Dow is sitting at a critical Fibonacci extension level, around 42,000. That also lines up with the July highs, adding more weight to this key area.

As the year comes to a close, the relative strength in space and exploration stocks is absolutely off the charts.

Steve did a great job covering them last month—make sure to check it out if you haven't already.

These stocks have been on my watchlist for weeks, and I think their time has come to continue their upward path.

Let me walk you through my two top picks that are offering an astronomical risk versus reward opportunity at current levels.

First up, we have Rocket Lab $RKLB: