EB Weekly Market Report - Monday, December 16, 2024

Tom Bowley - December 16, 2024

ChartLists Updated

The following ChartLists were updated over the weekend and are available for viewing/downloading on our website:

Strong Earnings (SECL)
Strong Future Earnings (SFECL)
Strong AD (SADCL)
Raised Guidance (RGCL)
Bullish Trifecta (BTCL)

Weekly Market Recap

Major Indices

Sectors

Top 10 Industries Last Week

Bottom 10 Industries Last Week

Top 10 Stocks - S&P 500/NASDAQ 100

Bottom 10 Stocks - S&P 500/NASDAQ 100

Big Picture

Secular bull markets take no prisoners. Their strength and resolve can't be questioned and missing out on them can be devastating from a long-term investment perspective.

International Stock Performance

Periodically, I like to review the U.S. performance vs. foreign stock market performance. I use the S&P 500 as the U.S. benchmark. Here's where we currently stand vs. other key foreign indices over the past 10 years on a weekly chart:

U.S. vs. Germany ($DAX):

U.S. vs. United Kingdom (EWU):

U.S. vs. France ($CAC):

U.S. vs. China ($SSEC):

U.S. vs. Hong Kong ($HSI):

U.S. vs. Japan ($NIKK):

Several of these foreign indices are in absolute uptrends, but none of them are in relative uptrends vs. the S&P 500. This tells me very clearly to remain invested primarily in U.S stocks.

Rotation/Intermarket Analysis

Here's the latest look at our key intraday ratios as we follow where the money is traveling on an INTRADAY basis (ignoring gaps):

QQQ:SPY

The Mag 7 stocks, much more heavily weighted in the QQQ than in the SPY, are playing a HUGE role in the sudden surge in this QQQ:SPY ratio.

IWM:QQQ

This ratio has me baffled, if I'm being honest. The current downtrend certainly does NOT confirm my belief that small caps will outperform large caps in 2025. I'm not giving up on this belief, because the fundamental story of a lower fed funds rate in 2025 should absolute benefit small caps. But at least for now, and in December thus far, money is rotating towards large cap growth, not the small caps. It's one reason why I increase my weighting towards small caps, but I don't put everything into small caps.

XLY:XLP

This is my favorite intermarket relationship and what I'd consider to be one of most important secondary indicators. We can debate which area(s) are the best to be invested in during the balance of December 2024 and throughout 2025, but the rising XLY:XLP ratio tells me I definitely want to remain invested in U.S. equities.

Sentiment

5-day SMA ($CPCE)

Sentiment indicators are contrarian indicators. When they show extreme bullishness, we need to be a bit cautious and when they show extreme pessimism, it could be time to become much more aggressive. Major market bottoms are carved out when pessimism is at its absolute highest level.

Readings on the 5-day SMA of the CPCE below .56 or so tell us that options traders are growing quite positive and complacent and these are marked with red arrows in the top panel. Red arrows in the bottom panel tell us where the S&P 500 was at the time of such complacency. While we don't look at this short-term sentiment indicator and expect it to mark major long-term market tops, you can see many short-term tops do coincide with these bullish readings. We have another short-term topping signal right now, but remember, sometimes all it takes is a little selling. I'm not talking about a correction, or even 3-5%. Perhaps we see a bit of sideways consolidation. I definitely would NOT short the stock market. Personally, I'm remaining long, but have exited leveraged products.

We've seen a little bit of relief over the past week and this 5-day SMA is now "up" to 0.56. This is still showing a very optimistic options world, but I still would not bet against further market upside in the 2nd half of December 2024. The S&P 500 has risen from the December 15th close to the December 31st close 58 of the last 74 years. That's a very high rate of seeing higher prices over the upcoming two-week period.

Like I said, it's difficult to bet against the market in the second half of December.

253-day SMA ($CPCE)

This is the long-term sentiment signal from the CPCE. It's telling me that the current freefall in bearish sentiment is pointing to higher U.S. equity prices, just as it's done in prior years.

Long-Term Trade Setup

Since beginning this Weekly Market Report in September 2023, I've discussed the long-term trade candidates below that I really like. Generally, these stocks have excellent long-term track records and many pay nice dividends that mostly grow every year. Only in very specific cases (exceptions) would I consider a long-term entry into a stock that has a poor or limited long-term track record and/or pays no dividends. Below is a quick recap of how I viewed their long-term technical conditions as of one week ago:

JPM - pulling back from slightly overbought condition; also, weekly negative divergence could play a role
BA - rallying of late, but failed at 160 price resistance and 20-week EMA resistance; need to clear 160
FFIV - has reached new all-time highs; overbought, but still climbing
MA - strength continues here as well
GS - certainly benefiting from strength in financials
FDX - 310 is the clear resistance level now
AAPL - has broken out to another all-time high
CHRW - climbed to 110-115 level to test August 2022 high; pulling back and unwinding overbought conditions
JBHT - bounced beautifully off 150 price support; transports are hot and helping many stocks like JBHT
STX - remaining above the rising 50-week SMA
HSY - to resume strength, needs to clear both price resistance at 180 and the declining 20-week EMA at 183
DIS - rising, but now approaching critical overhead price resistance from 120-125
MSCI - rising and getting closer to 2021 price resistance just above 650
SBUX - uptrend is intact and 110 price resistance from July 2021 awaits
KRE - been awesome since July 2023 and likely heading for key price resistance test at 72.50
ED - held key price support at 95 and is now trending back towards resistance near 107 - that's the range
AJG - steady strength continues
NSC - transports aiding here and NSC faces a huge price resistance test at 280 from late-2021 high
RHI - now trending higher, keep an eye on rising 20-week EMA, currently at 69
ADM - continues its rebound off 50
BG - still remains beneath its declining 20-week EMA; 75-80 is BG's key price support range
CVS - in a significant downtrend, but 44-45 is an extremely important price support level
IPG - moving through 32 would be bullish; until then, watch 26-32 range
HRL - 28-29 is key support, while a move through 36 resistance is ultimately what shareholders want to see

Keep in mind that our Weekly Market Reports favor those who are more interested in the long-term market picture. Therefore, the list of stocks above are stocks that we believe are safer (but nothing is ever 100% safe) to own with the long-term in mind. Nearly everything else we do at EarningsBeats.com favors short-term momentum trading, so I wanted to provide an explanation of what we're doing with this list and why it's different.

Also, please keep in mind that I'm not a Registered Investment Advisor (and neither is EarningsBeats.com nor any of its employees) and am only providing (mostly) what I believe to be solid dividend-paying stocks for the long-term. Companies periodically go through adjustments, new competition, restructuring, management changes, etc. that can have detrimental long-term impacts. The stock price nor the dividend is ever guaranteed. I simply point out interesting stock candidates for longer-term investors. Do your own due diligence and please consult with your financial advisor before making any purchases or sales of securities.

Looking Ahead

Upcoming Earnings

Very few earnings reports will be released through year end. The following list of companies is NOT a list of all companies scheduled to report quarterly earnings, however, just key reports, so please be sure to check for earnings dates of any companies that you own. Any company in BOLD represents a stock in one of our portfolios and the amount in parenthesis represents the market capitalization of each company listed:

Monday: None
Tuesday: None
Wednesday: MU ($109 billion), LEN ($42 billion), GIS ($47 billion)
Thursday: ACN ($225 billion), NKE ($117 billion), CTAS ($85 billion), FDX ($69 billion), PAYX ($51 billion)
Friday: CCL ($30 billion)

Key Economic Reports

Monday: December empire state manufacturing index
Tuesday: FOMC meeting begins, November retail sales, November industrial production & capacity utilization, December housing market index
Wednesday: November housing starts & building permits, FOMC announcement
Thursday: Q3 GDP (final), initial jobless claims, December Philadelphia Fed manufacturing index, November existing home sales, November leading indicators
Friday: November personal income & personal spending, December consumer sentiment

Historical Data

I'm a true stock market historian. I am absolutely PASSIONATE about studying stock market history to provide us more clues about likely stock market direction and potential sectors/industries/stocks to trade. While I don't use history as a primary indicator, I'm always very aware of it as a secondary indicator. I love it when history lines up with my technical signals, providing me much more confidence to make particular trades.

Below you'll find the next two weeks of historical data and tendencies across the 3 key indices that I follow most closely:

S&P 500 (since 1950)

Dec 16: +84.28%
Dec 17: +10.13%
Dec 18: +65.62%
Dec 19: -4.16%
Dec 20: -37.61%
Dec 21: +75.04%
Dec 22: +32.01%
Dec 23: +16.67%
Dec 24: +27.39%
Dec 25: Market closed
Dec 26: +126.45%
Dec 27: +40.63%
Dec 28: -9.70%
Dec 29: +42.91%

NASDAQ (since 1971)

Dec 16: +89.58%
Dec 17: +21.88%
Dec 18: +53.34%
Dec 19: -52.66%
Dec 20: -50.85%
Dec 21: +114.64%
Dec 22: +86.55%
Dec 23: +70.14%
Dec 24: +8.14%
Dec 25: Market closed
Dec 26: +147.19%
Dec 27: +26.56%
Dec 28: -17.64%
Dec 29: +54.26%

Russell 2000 (since 1987)

Dec 16: +124.77%
Dec 17: +42.46%
Dec 18: +37.06%
Dec 19: -46.12%
Dec 20: +23.20%
Dec 21: +160.91%
Dec 22: +72.84%
Dec 23: +110.02%
Dec 24: +16.82%
Dec 25: Market closed
Dec 26: +179.69%
Dec 27: +22.28%
Dec 28: -6.43%
Dec 29: +48.50%

The S&P 500 data dates back to 1950, while the NASDAQ and Russell 2000 information date back to 1971 and 1987, respectively.

Final Thoughts

The first half of December was similar to what we experienced during much of 2023 and the first half of 2024. The large cap growth names dominated, especially the Mag 7. I expect that many of those Mag 7 names will continue to perform well as they're now in all-time record high territory. Here's what I'll be looking for this week and into the 2nd half of December:

The Fed. The last Fed meeting of 2024 is set to begin on Tuesday morning and culminate with the FOMC's latest interest rate decision, likely its 3rd fed funds rate cut in a row. Most economists are expected a 25-basis point reduction, bringing the total cuts in 2024 to 100 basis points.
The economy. In addition to the likely rate cut, it'll be interesting to see what the Fed sees ahead for 2025. Some economists believe the Fed will lower its expected number of rate cuts in 2025 from 4 to 3. I'm not in that camp, but it's certainly a possibility. Also, November retail sales are expected to show improvement from October
Volatility ($VIX). The VIX is up 4% today, despite most of our major indices being higher. Positive correlation between the VIX and the S&P 500 can be problematic and call for market reversals. On a daily chart, this appears when the correlation coefficient moves above the zero line. While the correlation coefficient is currently moving higher, it still has a ways to go to turn positive. So, for now, I'll just keep watching.
Mag 7. TSLA continues its massive surge higher. While not a Mag 7 stock, I mentioned a breakout in AVGO after last week's earnings could trigger a big advance here as it has a seasonal history of strong December performance. AVGO opened at 213.90 on Friday morning, above the key price resistance that I pointed out, and it trades today - just one trading session later - at 249.25. It's now on quite a run!

Feedback

If you'd like to share your thoughts on our Weekly Market Report, positive or negative, you can reach us at "[email protected]".

Happy trading!

Tom