EB Daily Market Report - Wednesday, December 16, 2020
Announcements
Holiday Special
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Market Vision 2021
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Executive Market Summary
- Futures were relatively flat, with NASDAQ futures slightly higher on a relative basis
- The NASDAQ has maintained its leadership today
- There's been a return to growth stocks (IWF) in recent days as they attempt a breakout vs. value stocks (IWD)
- Retail sales were very disappointing this morning, but retail stocks (XRT, -0.10%) have seen a fairly muted response
- The 10-year treasury yield ($TNX) also began the day higher, unusual after a weak economic report; subsequently, we have seen the TNX retreat back close to its flat line for the session
- Microsoft (MSFT, +2.14%) and Salesforce.com (CRM, +1.38%), two software stocks, are leading all Dow Jones component stocks
- The S&P 500, meanwhile, is getting a big lift from Chipotle (CMG, +5.15%) and ServiceNow, Inc. (NOW, +3.92%), another software stock
- Technology (XLK, +0.63%) is on top of the sector leaderboard as software ($DJUSSW, +1.87%) performs extremely well
Market Outlook
Are we seeing a return to growth stocks? One significant change is occurring on the IWF:IWD chart that's worth noting. First, let's look at the 3 month hourly chart, then the 1 year daily chart:
As a reminder, we've been watching that 1.69 relative support level. The 2020 uptrend remains in play so long as that relative support level holds. So far so good. The opposite thought, however, is that we're downtrending as long as this IWF:IWD ratio remains below its declining 20 day EMA. Well, if you look at the two charts above, you'll see this ratio trying to clear 1.75-1.76 overhead resistance on the hourly chart and this ratio trying to clear its 20 day EMA on the daily chart. If the IWF:IWD ratio is successful on both fronts, it would certainly make me think more bullish thoughts on growth stocks and I'd want more exposure in that area.
Sector/Industry Focus
Consumer discretionary (XLY) was featured yesterday, particularly the specialized consumer services group ($DJUSCS), which did make its breakout yesterday, by the way. It's probably a good idea to recognize that consumer discretionary stocks are beginning to trend higher vs. their consumer staples counterparts (XLY:XLP). This is my favorite relative ratio in determining whether a bull market advance is sustainable. As the market moves higher, I want to see Wall Street rotating more towards consumer discretionary stocks, because those stocks should benefit more from a stronger economy moving forward. Check out the latest in this ratio:
A breakout in this ratio would be extremely bullish and suggest this current rally is quite sustainable.
ChartLists/Strategies
Let's look at 3 more charts today, the first was one I discussed yesterday - the short squeeze candidate. The second and third charts are two stocks that we've loved at EarningsBeats.com for several quarters.
AKTS:
This is a perfect illustration of how you can use our Short Squeeze ChartList. Find a stock that's got a TON of short interest and wait for strength. AKTS broke to a multi-month high yesterday on very heavy volume and now the pressure is on those holding short. They're thinking, "do I cover now and limit my loss?" Many will remain stubborn, but the pain will grow if AKTS continues climbing. It's up another 7.51% today. If you're holding a short position, how much are you willing to take before you simply throw in the towel and buy, adding to the current buying pressure? These stocks can move very, very quickly to the upside.
SHOP:
Breakout or false breakout? Which is it? We don't know right now. However, we do know this. SHOP is trading unusually heavy volume today, so either should be respected. Relative strength is building in SHOP, so I believe a breakout is coming. The question is simply whether it happens today or do we maybe test the rising 20 day EMA one more time first? I see higher prices ahead in either case.
CMG:
I love CMG. I love their food and I love their chart. Stifel upgraded CMG today, which is responsible for the sudden surge in both price and volume. A breakout should be respected, but I feel the same about CMG as I do SHOP. I see higher prices ahead, whether today results in a breakout or not.
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.
Wednesday, December 16:
LEN, TTC, ABM
Thursday, December 17:
ACN, FDX, GIS, JBL, BB, NAV, AIR, RAD
Economic Reports
November retail sales: -1.1% (actual) vs. -0.3% (estimate)
November retail sales ex-autos: -0.9% (actual) vs. +0.1% (estimate)
December PMI composite flash: 55.7 (actual) vs. 57.4 (estimate)
October business inventories: +0.7% (actual) vs. +0.6% (estimate)
December housing market index: 86 (actual) vs. 89 (estimate)
FOMC policy statement due at 2:00pm ET (no change in interest rates expected)
Happy trading!
Tom