EB Daily Market Report - Friday, December 18, 2020
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Executive Market Summary
- Futures were higher as we opened on the next-to-last Friday of 2020 (the last Friday that will be open)
- There was very little economic news with November leading indicators slightly beating estimates
- The 10-year treasury yield ($TNX) shows very little movement today, close to its flat line
- The Volatility Index ($VIX, +6.25%) is on the rise given some selling today
- FedEx Corp (FDX, -5.14%) is down following a very upbeat quarterly earnings report
- Delivery services ($DJUSAF, -2.57%) is performing poorly as a result of the FDX weakness
- Renewable energy ($DWCREE, +4.10%) is off to a great start today, breaking to a fresh all-time high
- Intel (INTC, -2.42%) is the weakest link in the Dow Jones Industrial Average
- Roku (ROKU, +3.22%) and Tesla (TSLA, +1.68%) continue their torrid streak higher
Market Outlook
We're in the second half of December, which typically produces a nice market rally into year end. Many refer to it as the "Santa Claus" rally. To give you some historical perspective, here are the annualized returns for the last two weeks of December on the S&P 500 since 1950:
December 18th (Friday): +67.78%
December 19th (Saturday): -2.77%
December 20th (Sunday): -26.98%
December 21st (Monday): +61.29%
December 22nd (Tuesday): +37.04%
December 23rd (Wednesday): +11.06%
December 24th (Thursday): +25.80%
December 25th (Friday): N/A - U.S. markets closed (Christmas holiday)
December 26th (Saturday): +126.94%
December 27th (Sunday): +37.33%
December 28th (Monday): -8.46%
December 29th (Tuesday): +39.28%
December 30th (Wednesday): +33.85%
December 31st (Thursday): +38.12%
Those are pretty strong historical numbers with really the only weakness coming on the 19th and 20th, which this year fall on a Saturday and Sunday. Perhaps this is why we're seeing a bit of selling today. Maybe we'll see a bit more on Monday, but given the historical trends, I'd expect to see more buying into year end.
Sector/Industry Focus
Recreational products ($DJUSRP, +1.74%) are on the verge of a breakout above the early-November high. The group has also shown relative strength recently, moving to a 5-6 week relative high as well. We could see this relative strength accelerate should the breakout occur on the absolute chart:
518.98 is the candle body high that I'll be watching on the close. If we don't make the breakout today, I would expect to see it soon. In the meantime, the rising 20 day EMA, currently at 496.33, should provide excellent support on any short-term selling and/or consolidation.
ChartLists/Strategies
One of my favorite short-term trading strategies is to buy a stock at a critical earnings-related gap support. When a stock gaps up on very heavy volume and continues moving higher after the gap, it's typically a sign of very strong demand. When a stock returns to the top of gap support, I find it to be a very attractive reward to risk entry point. I do not expect a stock to "fill its gap" back to the bottom of gap support.
I reviewed many stocks on our Strong Earnings ChartList, looking for examples. Here are a few:
CI:
EXAS:
HOG:
CI is approaching that key gap support near 195. Both EXAS and HOG are examples of stocks that bounced almost squarely off such gap support. One strategy could be to buy half of a potential position as a stock approaches that gap support. If it moves below intraday, then comes back up above, the second half could be bought with a stop placed under that intraday low in order to keep losses to a minimum. But if support holds, these types of stocks can produce very nice short-term winning trades.
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 18:
NKE, DRI, WGO
Monday, December 19:
HEI, FDS
Economic Reports
November leading indicators: +0.6% (actual) vs. +0.5% (estimate)
Happy trading!
Tom