EB Daily Market Report - Tuesday, December 21, 2021
Executive Market Summary
- Futures were strong overnight, after our key indices rallied on Monday to finish near their highs of the day
- Crude oil ($WTIC, +3.91%) has rebounded above $71 per barrel, aiding the energy sector (XLE, +3.01%)
- The 10-year treasury yield ($TNX) has finally jumped, gaining 8 basis points to 1.50%
- Financials (XLF, +2.51%) are benefiting from the higher treasury yields, with life insurance ($DJUSIL, +4.26%) leading the way
- Consumer staples (XLP, -0.12%), a recent leading sector, is today's only loser; discretionary stocks (XLY, +1.90%) are crushing staples on the session
- Reopening stocks are performing well as gambling ($DJUSCA, +7.03%), recreational services ($DJUSRQ, +6.25%), and travel & tourism ($DJUSTT, +5.78%) are pacing discretionary stocks
- Micron Technology (MU, +9.96%) trails only Citrix Systems (CTRX, +12.53%) among S&P 500 stocks as MU posted better-than-expected quarterly results
Market Outlook
Short-term, the Dow Jones U.S. Small-Cap Growth Stocks Index ($DJUSGS) held 7200 closing price support, as you can see from the following line chart (line charts only show closing prices):
The bottom panel shows how badly small cap growth stocks have performed vs. the large cap S&P 500 since the beginning of November. If you've struggled much more than the benchmark over the past 6-7 weeks, it's quite likely due to the relative weakness shown on this chart. The past few days we've seen small caps show life on a relative basis, but the group's still got a lot of catching up to do.
Sector/Industry Focus
If you believe that treasury yields will move higher, one group that should benefit is life insurance ($DJUSIL). It's bouncing off key trendline support and, if yields rise, this group should be a strong performer and should continue to hold onto trendline support:
While trendline support is currently holding, there are two warning signs here that I'd acknowledge. First, the AD line continues to drop, hitting fresh new lows. That tells us that Wall Street might be selling while retailers are buying with the idea of higher rates ahead. The second warning sign is the relative strength of DJUSIL - or relative weakness in this case. Since summer, I see at least 6 relative bottoms between .197 and .199. If this relative support is lost and the AD line remains weak, I'd be out of this industry group altogether.
ChartLists/Strategies
We haven't seen much action lately among our Short Squeeze ChartList (SSCL), but today has been a totally different story. Our highest short percentage of float on this list right now is Biofrontera, Inc. (BFRI, +46.85%), which has exploded to the upside today. BFRI's short percentage of float is over 84%, an extremely high number. It's the type of number that could trigger panic buying among short sellers if today's strength accelerates into the close.
The above 15 Short Squeeze ChartList stocks all gained more than 4% at last check, which was roughly 3 times the S&P 500 gain today. Clearly, BFRI was the group's big winner, but as other SSCL stocks move higher, they could clear key price resistance levels that begin to trigger more short covering. On the above list of 15 stocks, only GOGO shows a SCTR that's above 50. Here's the current chart on GOGO:
15 has been a key pivot point on the chart during much of 2021, so a trip back to that level wouldn't seem too far stretched. A move above that level could begin to make shorts think about covering their short position to reduce risk. GOGO is near a 1-month high and a move above 15 would put anyone recently shorting under considerable water. I'd keep an eye on this one.
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 21:
GIS, FDS, BB, NEOG, AIR
Wednesday, December 22:
CTAS, PAYX, KMX, MSM
Economic Reports
None
Happy trading!
Tom