EB Daily Market Report - Friday, December 11, 2020

Tom Bowley - December 11, 2020

Save The Date!

Event: MarketVision 2021

Date: Saturday, December 19, 2020

Time: 9:00am - 2:00pm ET

I will be speaking and I'll have two other distinguished speakers joining me - David Keller, Chief Market Strategist, and Grayson Roze, VP of Operations, both from StockCharts.com. More details to follow!

Executive Market Summary

Futures were weak from the open and the Dow Jones, S&P 500, and NASDAQ are all trading below their respective 20 hour EMAs
The 10-year treasury yield ($TNX) is down a basis point, despite mostly solid news on the economic front
Energy (XLE, -1.75%) has been either first or worst lately on the sector leaderboard; today it's the latter
Communication services (XLC, +0.20%) joins consumer staples (XLP, +0.04%) as the only two sectors in positive territory
Walt Disney's (DIS, +13.75%) strength is lifting the XLC and curbing what would be bigger losses on the Dow
Gold (GLD, +0.19%) is testing its 20 day EMA from underneath and has a chance at a more extended rally given the increase in volatility
Apple (AAPL, -1.57%) announced it would be replacing QUALCOMM's (QCOM, -7.84%) chips with in-house chips

Market Outlook

We must at least acknowledge the time of year we're dealing with. History can provide headwinds and it seems to be doing so right now. Below is a breakdown of S&P 500 historical performance during December, dating back to 1950:

December 1-6: +21.15% (any given day moves up 53.87% of the time)

December 7-10: +7.39% (any given day moves up 51.53% of the time)

December 11-15: -27.85% (any given day moves up 47.39% of the time)

December 16-31: +35.75% (any given day moves up 58.14% of the time)

From history, it's clear that the S&P 500 has a tendency to struggle from the 7th through the 15th of December, especially from the 11th through the 15th. Today is December 11th. These tendencies do not provide any sort of guarantee, but it's good information to have.

Here's the hourly chart of the S&P 500, showing the current short-term downtrend in play with key support along the way:

Channel support and gap support reside at approximately 3615 and 3621, respectively. It's also important to note that the rising 20 day EMA (not pictured above) is currently at 3627. Today's low of 3633 neared that level. While it's certainly possible that the S&P 500 moves below these levels, I believe this area of support will hold. If they do fail to hold, however, keep in mind that the VIX is rising rapidly and could produce another 3-4% of selling on the S&P 500. I don't believe it will happen, but a breakdown beneath the support levels mentioned, together with a rising VIX, could see a quick descent during the current historical bearish period that we're in.

Sector/Industry Focus

Communication services (XLC) is a favorite sector of mine, but it's reacting to a negative divergence right now, much like it did in previous months. I'd like to see the XLC hold support near 65.50-66.00:

Loss of 65.50 support would require further short-term re-evaluation.

ChartLists/Strategies

Let's take a short-term break from being overly active on the trading front. I do not believe we'll see any long-lasting selling momentum, but the Volatility Index ($VIX) is up another 7% or so today and shows that the market is becoming a bit more stressed near-term. We also know that the next few trading days can be a bit bearish. I believe we may see better trading opportunities early next week. A bit of caution here is probably not a bad thing.

Earnings Reports

Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks that will be reporting results are highlighted in BOLD. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning.

Friday, December 11:

None

Monday, December 14:

None

Economic Reports

November PPI: +0.1% (actual) vs. +0.1% (estimate)

November Core PPI: +0.1% (actual) vs. +0.2% (estimate)

December consumer sentiment: 81.4 (actual) vs. 76.0 (estimate)

Happy trading!

Tom