EB Daily Market Report - Monday, December 6, 2021
ChartList Updated
We updated our Bullish Trifecta ChartList (BTCL) over the weekend and is now available for you to view/download. If you're a StockCharts.com Extra or Pro member, this is one ChartList that you can scan for at any time. Just pull up a "New Scan" from Your Dashboard and delete all default scan parameters. Then use the dropdown menu to select the Strong Earnings ChartList (SECL), Strong AD ChartList (SADCL), and Raised Guidance ChartList (RGCL). Run the scan and the results will represent all the common stocks included on ALL 3 of these ChartLists. I believe this is a GREAT place to start when considering trade candidates - companies showing signs of accumulation and relative strength that have also beaten Wall Street revenue and EPS estimates in their most recent quarter, plus have raised guidance within the past 2-3 months. Great fundamentals and great technicals. While it guarantees us nothing, I believe it does put the odds much more in our favor.
Executive Market Summary
- Futures were mixed overnight with clear relative strength on the Dow Jones and S&P 500, especially the former
- The NASDAQ, meanwhile, is continuing to struggle on a relative basis as technology (XLK, +0.40%) and consumer discretionary (XLY, +0.81%) remain out of favor
- Defensive areas like utilities (XLU, +2.39%) and real estate (XLRE, +2.18%) are leading today's rebound, which, in my opinion, tells us not to let our guard down; the selling episode may not be over
- All 11 sectors are higher, but health care (XLV, +0.27%) and technology are lagging the others
- The "reopening trade" is alive and kicking as initial signs point to the omicron variant posing no additional health risks vs. the delta variant; this data is still very early, however
- Airlines ($DJUSAR, +7.82%), recreational services ($DJUSRQ, +8.13%), and travel & tourism ($DJUSTT, +6.38%) are among today's leading industry groups
- Moderna's (MRNA, -14.80%) volatility has been crazy in both directions; the early Omicron data, though, appears to have MRNA traders on the defensive
- Travel dominates the S&P 500 leaders, including airlines, cruise lines, and gambling stocks
Market Outlook
Sentiment indicators are most important right now. Bottoms typically print with extreme fear. I believe sentiment does a much better job of marking bottoms than it does tops. For that reason, I'm literally following the Volatility Index ($VIX) and equity only put call ratio ($CPCE) throughout the trading day. The link I provided to the CBOE in Friday's DMR is HERE again if you'd like it. The put call ratio is updated every half hour throughout the day and, by following it, you can take the temperature of retail traders. Are they panicking? Is the fear subsiding?
I've concentrated most of my volatility work around the VIX and how it compares to the S&P 500. You can do the same thing by following the Volatility Index - CBOE NASDAQ 100 ($VXN) and comparing it to the NASDAQ 100 ($NDX). This is particularly useful if the S&P 500 and NASDAQ 100 are diverging in terms of performance. The VXN provided us the same warning as the VIX:
It's very important to keep in mind that NO signal provides us a guarantee. I simply follow these charts in order to help manage risk. As volatility rises in a rising market, it tells us to be especially careful. Building cash, selling covered calls, buying put insurance, etc, are all worthwhile measures to consider when the bullish leaves start turning colors.
Sector/Industry Focus
One thing that has not changed yet is traders' appetite for small cap growth stocks. I'm watching closely, however, as the Dow Jones U.S. Small-Cap Growth Index ($DJUSGS) could be preparing for a rally off of key intermediate-term price support:
This is an area on the absolute price chart that I'd be looking for the bulls to step up. If they don't, it would be easier to see a further decline in this asset class.
ChartLists/Strategies
I've been spending much of my time looking for what could be solid reward to risk trades during a rebound in growth stocks. Many stock have been pummeled beyond recognition. We know about Zoom (ZM), Peloton (PTON), and the like. Add Docusign (DOCU) to the mix. I believe all three companies could be big winners long-term, but try telling that to Mr. Market right now. Let's wait and try to catch them on uptrends as their downtrends are firmly implanted at this point. But what beaten-down stocks could present opportunities at major support? Here are a few to consider:
FSLY:
TSLA:
ENPH:
BILL:
If growth stocks continue to fall and these stocks, and others like them, fail to hold onto price support, I believe you have to be prepared to take losses and let them go. I've added both FSLY and TSLA as building positions as they approach/test support was my strategy. I don't own ENPH or BILL, but may decide to take a shot with them later today. Other stocks that looked interesting today were TTD, ALB, GOOS, INTU, and SWAV - all from our Bullish Trifecta ChartList (BTCL), which was updated on our website over the weekend.
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.
Monday, December 6:
MDB, COUP, GTLB, SAIC, HQY, SUMO
Tuesday, December 7:
AZO, TOL, CHPT, CASY, PD, SFIX, AVAV, PLAY
Economic Reports
None
Happy trading!
Tom