EB Daily Market Report - Wednesday, December 8, 2021

December Seasonality

I will be sending out the Monthly Seasonality Report for December later today. I apologize for not getting it out sooner. The S&P 500 had risen nearly 3% thus far in December through yesterday's close. The table of 20 stocks shows the November 30 close, along with the close from yesterday, to make it comparable to the S&P 500. The average performance in the first week of December is about 1 percentage point above the benchmark's. Here are the list of stocks.

The full Seasonality Report will be mailed out later today. Thanks for your patience.

Executive Market Summary

• Futures were relatively flat overnight, though most of our key indices did open slightly higher
• There's been little volatility today as stock prices gravitate higher
• Growth stocks are showing strength relative to value stocks, but that could change abruptly; the consumer price index for November will be released Friday morning
• Cryptocurrencies are mostly higher as ethereum ($ETHUSD, +2.90%) outperforms bitcoin ($BTCUSD, +0.38%) on the session - more on this below
• The 10-year treasury yield ($TNX) is up 3 basis points to 1.51%, despite no significant economic news out
• The rise in yields has done little to help financials (XLF, -0.42%), which are challenging consumer staples (XLP, -0.49%) for worst-performing sector
• Communication services (XLC, +0.68%) is today's best performing sector, but it could be temporary as it approaches its 20-day EMA at 77.65
• Stock leadership today revolves mostly around re-opening stocks; cruise lines are at the top as NCLH and CCL gain 8.45% and 5.73%, respectively

Market Outlook

Two days ago, I wrote about small cap growth stocks ($DJUSGS), suggesting that they were at a critical support level on their chart. The good news is that they bounced right on time. Here's an update of the chart I provided then:

It was a beautiful bounce off both channel and price support. There's bad news, however. The DJUSGS has a history of underperforming the S&P 500 during the month of December. In fact, since this secular bull market was confirmed in April 2013, when the S&P 500 finally cleared its double top from 2000 and 2007, the DJUSGS has outperformed the S&P 500 during December just twice (this is the 9th December). Here's the seasonal chart to illustrate:

If there's one compensating factor, it's that the DJUSGS has averaged underperforming by just 1/2 percent. So maybe it's not even worth considering. But I felt like it was still worth mentioning, especially given that we'll be getting an inflation report (CPI) on Friday and then PPI next Tuesday. Higher-than-expected inflation typically has a negative impact on growth stocks, so just be aware of this.

Sector/Industry Focus

I do not trade cryptocurrencies, though I recognize that many of you do. I would continue to look at the relative strength for clues as to which to trade. I know there are many different cryptos, but I tend to focus mostly on the relationship between bitcoin ($BTCUSD) and etherium ($ETHUSD) - at least for now. It's been clear for a couple years now that ethereum is the much better crypto to be long as BTCUSD has been falling on a relative basis for a long, long time:

There was a relative bear flag in play until it just broke down here in the past 1-2 weeks. It looks very similar to the bear flag that formed back in early 2020. The breakdown back then resulted in much further relative weakness for BTCUSD. I'd expect a similar path here. I'd continue to favor ethereum over bitcoin until the charts say otherwise.

ChartLists/Strategies

I ran our 20-day EMA scan against our Strong Earnings ChartList (SECL) and required SCTRs above 80. 22 stocks were returned. They were as follows (in SCTR order, high to low):

DDOG, ARCB, INDI, MP, IRTC, HLIT, PFE, TMO, WOLF, OMCL, MSCI, ATRA, CERS, MSFT, QLYS, FND, DHR, ICLR, MEDP, OCSL, RSG, REGN.

Here are two interesting charts:

MP:

This chart is interesting for one reason. When was the last time you saw me feature a mining stock? I can't recall doing it, but mining stocks do tend to perform well during December and MP is in a bull flag formation. I'd just be careful if the bullish flag falls apart. That would start with a close beneath 41.

WOLF:

I love the PPO moving back down toward centerline support. Also, WOLF is trying to close above its 20-day EMA for the second straight day. Finally, at the very end of the recent downtrend, the AD line was actually moving higher, suggesting that Wall Street was accumulating during the weakness. This one is quite volatile, however, so be sure you're comfortable with what could be an extreme move in either direction.

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 8:

PATH, GME, CPB, RH, THO, FLNC, KFY, UNFI, PHR

Thursday, December 9:

ORCL, COST, AVGO, LULU, CHWY, HRL, MTN, CIEN

Economic Reports

None

Happy trading!

Tom