EB Daily Market Report - Wednesday, December 22, 2021
Executive Market Summary
- Futures were mixed overnight and our key indices opened relatively flat
- There's been an upward bias throughout much of today's action, although it's been a struggle to hold onto those gains this afternoon
- The U.S. Dollar (UUP, -0.33%) is weak, leading to gains in most commodities
- Crude oil ($WTIC, +1.60%) is up and gold ($GOLD, +0.76%) has climbed back above $1800 per ounce
- The 10-year treasury yield ($TNX) is down 3 basis points to 1.46%, despite solid economic news out this morning
- Consumer discretionary (XLY, +1.27%) is the top performing sector as automobiles ($DJUSAU, +5.02%) jump
- Tesla (TSLA, +5.84%) is solidly higher after its CEO Elon Musk said he's done "enough selling" of TSLA stock
- Paychex (PAYX, +5.01%) has surged after reporting better-than-expected quarterly results
Market Outlook
The commodity that I follow the closest is copper ($COPPER). Copper only moves higher if global economic demand is picking up or expected to pick up. We've watched throughout 2021 as copper has made both failed breakout and breakdown attempts. If you believe that economic activity will pick up in 2022, then being long copper or copper-related stocks like Freeport-McMoran (FCX) makes sense:
The bottom panel shows the very tight positive correlation between the price of copper and the performance of FCX. I'm looking for copper to eventually break out and, if it does, it would provide further confirmation of a global economic recovery.
Sector/Industry Focus
Unless it fades into today's close, aluminum ($DJUSAL) is making a significant breakout above its mid-October high. Failure would suggest that the right side of a cup has formed and that we should expect a handle to form, perhaps down to the rising 20-day EMA. Here's what I'm seeing:
Again, if we see the breakout into the close, then I would not be looking at this like a cup with handle. However, should selling escalate into the close, then a pullback to the rising 20-day EMA increases in likelihood.
ChartLists/Strategies
I'll stick with this DMR's theme of materials and provide one stock from our Bullish Trifecta ChartList (BTCL) that looks like it has a very solid reward to risk setup right now:
ALB:
ALB appears to have excellent price support at 210, so I'd consider that to be my closing stop. The high less than a month ago was near 290, so the reward to risk here is solid. I especially like the AD line remaining near its high, despite the 3-4 week selloff. If you look at many of the candlesticks the past few weeks, ALB has been able to print hollow candles and generally close in the upper half of candle bodies. That is what drives the higher AD lines.
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 22:
CTAS, PAYX, KMX, MSM
Thursday, December 23:
None
Economic Reports
Q3 GDP (final estimate): 2.3% (actual) vs. 2.1% (estimate)
December consumer confidence: 115.8 (actual) vs. 110.7 (estimate)
November existing home sales: 6,460,000 (actual) vs. 6,510,000 (estimate)
Happy trading!
Tom