EB Daily Market Report - Tuesday, December 22, 2020

Executive Market Summary

• Futures were mixed at the open with relative strength in NASDAQ shares
• That relative strength has continued as the NASDAQ outperforms both the Dow Jones and S&P 500
• Small caps ($SML) and mid caps ($MID), however, are performing similar to the NASDAQ
• Technology (XLK, +0.87%) and real estate (XLRE, +0.48%) are the only two sectors in the green
• Communication services (XLC, -0.93%) is seeing some profit taking today as internet stocks take a breather
• The 10-year treasury yield ($TNX) is down 2 basis points after a couple of disappointing economic reports earlier this morning
• Crude oil ($WTIC) and other commodities are mostly lower as the U.S. Dollar (UUP) advances
• CarMax (KMX, -7.57%) is the worst S&P 500 performer, despite beating both revenue and EPS estimates

Market Outlook

It's probably a good time to revisit 2 IWF:IWD ratio charts (growth vs. value) that I included in a recent DMR. If you recall, I was hoping that we'd see a breakout in the ratio above 1.75-1.76 and clear the declining 20 day EMA. We're good on both counts:

There's your hourly view, with the IWF:IWD clearing that key high from early December. Now the daily view....

There's plenty of good news on this chart. First, we held key relative support at 1.69. Next, we've powered through that 20 day EMA. Finally, check out that relative PPO. We've moved above centerline resistance, so we're actually beginning to accelerate in a bullish relative manner, something we haven't seen in a few months.

Sector/Industry Focus

The NASDAQ is leading on a relative basis today and the reason is quite simple. Technology (XLK, +0.80%) is the top performing sector and it's been showing leadership since breaking out above its September high:

It's not hard to understand where the renewed technology strength is coming from either. Apple (AAPL, +2.97%) has started trending higher again, recently bouncing off its 20 day EMA successfully:

The XLK's holdings include 23.08% of AAPL. The good news for the XLK is that AAPL hasn't even broken out above its September high, so clearly other areas of technology are performing quite well. An AAPL breakout would add even more fuel to the fire.

ChartLists/Strategies

Our Short Squeeze ChartList continues to produce HUGE winners. The #1 short on the list is GME, which has an unheard of level of short % of float at 140%. Honestly, I don't even know how this is possible, but I've seen this number on multiple websites, so I'm assuming it's true. Regardless, what it means is that GME is being very heavily bet against by short sellers. As the stock rises, it creates more demand as short sellers must cover their shares to limit their losses. GME is threatening another breakout today - and on enormous, short-covering type volume:

The volume is already over 21 million shares and there's still close to 2 hours left in the trading session. I cannot imagine how the shorts must be feeling right now. I wonder if many of them know that the short % of float is 140%.

You can pull up our Short Squeeze ChartList in Summary form and see what stocks are working. Those are the stocks you should be interested in. When I trade Short Squeeze ChartList stocks, I want companies that are trending higher, not pulling back. That's what's different about this group. The breakouts trigger more buying because of the heavy short interest. Shorts don't cover during pullbacks. They cover when they're feeling the pain of a breakout.

Check out the Top 5 performers of the SSCL today:

AKTS was discussed recently and it continues to soar. I believe it was roughly 9.50 when I mentioned it in a DMR a little over a week ago. It was just breaking out. BLNK has been incredible, rising 30% in the past few trading days after clearing its November high. BGFV is making a breakout today:

Please keep one thing in mind if you do trade any of the Short Squeeze ChartList stocks. They can produce tremendous returns in the short-term, but they also present considerable risk. Just make sure you're on board with that risk before trading any of these. I like trading these stocks, but I typically do it with smaller position sizes, because of the higher risk associated.

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.

Tuesday, December 22:

CTAS, KMX

Wednesday, December 23:

PAYX

Economic Reports

Q3 GDP (Final Estimate): 33.4% (actual) vs. 33.1% (estimate)

December consumer confidence: 88.6 (actual) vs. 97.0 (estimate)

November existing home sales: 6,690,000 (actual) vs. 6,720,000 (estimate)

Happy trading!

Tom