EB Daily Market Report - Thursday, December 9, 2021
Executive Market Summary
- Futures were mostly lower overnight and our major indices opened lower this morning
- After a brief move higher this morning, the NASDAQ has been trending lower consistently throughout the day
- The 10-year treasury yield ($TNX) is down 2 basis points to 1.49%, despite initial jobless claims falling to a 52-year low
- Cryptocurrencies are struggling today with most down 5-6% or more
- The volatility in crude oil ($WTIC) continues as it's fallen close to 2.5% to $70.50 per barrel
- Consumer stocks are at opposite ends of the spectrum - staples (XLP, +0.48%) are on top, while discretionary (XLY, -1.25%) lags all other sectors
- Growth stocks ($DJUSGS, -1.80%) were leading value stocks ($DJUSVS, -0.85%) early in the session, but that has changed considerably into the afternoon
- Tesla (TSLA, -5.05%) is the worst performer among the S&P 500 component stocks, sending autos ($DJUSAU, -4.69%) much lower
Market Outlook
Since today's opening bell, traders have been positioning themselves in value stocks ($DJUSVS) ahead of tomorrow's CPI report. The loser in this strategy? Growth stocks ($DJUSGS). Another loser is the NASDAQ, which has been losing ground nearly all day after briefly moving into positive territory. In fact, the paths of the Dow Jones and NASDAQ have been polar opposite one another all day long. Check out this 1-day, 5-minute chart:
The Dow Jones has just begun to show some weakness, but for most of the day, it saw plenty of buyers. To me, it's a signal that many market participants are simply taking no chance with a big inflation report due out tomorrow morning. A hotter-than-expected CPI number could definitely spark another short-term selloff in growth stocks. It's not a selloff that I believe sticks longer-term, but the short-term picture is much cloudier.
Sector/Industry Focus
We've seen some rotation lately from consumer discretionary (XLY) to consumer staples (XLP), which is a normal occurrence from time to time, especially when we go through a period of market volatility and/or uncertainty. Back in February through May, when hints of high inflation first began to appear (red-shaded area below), the XLY:XLP ratio declined rather significantly. Should tomorrow morning's report come in hotter than expected, I wouldn't be surprised by a similar decline:
We've already seen some deterioration in this ratio the past 2-3 weeks, but we could see more, depending on future inflation numbers.
ChartLists/Strategies
Personally, I've been selling ahead of tomorrow's CPI report, so I'd be very selective in terms of buying. If I bought anything, it'd likely be in a defensive area, perhaps real estate. Here is a real estate stock from our Strong Earnings ChartList (SECL) that could present a nice opportunity without a ton of risk:
ACC:
I like the lower volatility associated with today's inside day candle. An "inside day" refers to a candlestick where the high and low both reside within the boundaries of the prior candlestick. ACC moved higher for the last 5 days and today's inside day is a signal of indecision and consolidation. Because it's printed a nice flag pole over the past week, I believe any consolidation will ultimately prove to be solid entry for another leg higher. ACC did close at a fresh all-time on Wednesday, so I'd be looking for higher prices ahead.
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.
Thursday, December 9:
ORCL, COST, AVGO, LULU, CHWY, HRL, MTN, CIEN
Friday, December 10:
ASO
Economic Reports
Initial jobless claims: 184,000 (actual) vs. 223,000 (estimate)
Happy trading!
Tom