EB Daily Market Report - Tuesday, December 19, 2023
Executive Market Summary
- Futures were up slightly overnight and our major indices gapped higher
- The Dow Jones is on the verge of closing at an all-time high for the 5th consecutive session
- The S&P 500 is currently at 4762, less than 1% from an all-time high and roughly 35% above its October 2022 cyclical bear market bottom
- The Russell 2000 (IWM) small cap index is about to close at its highest level since April 2022, clearing 200 in the process
- The Volatility Index ($VIX, -1.27%) continues to drift lower and lower as bull market behavior dominates the action
- There's a combination of growth/value leadership today, with all 11 sectors trading higher, despite overbought conditions
- Communication services (XLC, +1.12%) is the best-performing sector, with energy (XLE, +1.09%) a close second
- Commodities are mostly higher, with crude oil ($WTIC, +1.53%) jumping back above $73 per barrel
- The 10-year treasury yield ($TNX) is down 3 basis points, despite stronger-than-expected housing starts
- Renewable energy ($DWCREE, +4.20%) is very strong as Enphase Energy (ENPH, +9.34%) leads all S&P 500 component stocks
Market Outlook
Many market participants are nervous about overbought conditions, but the extent that the Dow Jones is overbought really depends on what time frame you look at. If I pull up a 20-year weekly chart, then I could make the argument that we could see weeks of buying before the next meaningful bout of selling. Check it out:
After periods of consolidation, it's not unusual for U.S. equities to rip higher for an extended period of time. And from all of my years of research, I also know that the biggest gains occur within the first two years after a bear market bottom prints. That would suggest that we could have close to another year of solid gains ahead and overbought conditions may be the norm for awhile.
Sector/Industry Focus
Internet stocks ($DJUSNS) are one of the aggressive industry groups that I like to follow closely. In a period of solid economic strength and low inflation, internet stocks should provide excellent leadership and that's what we've seen for the couple decades:
In the top part of this chart, I've highlighted the clear uptrend with a thick blue directional line. In the bottom panel, I've illustrated the relative strength of internet stocks vs. the benchmark S&P 500. For most of the last 15 years, this relative strength has been confined within a fairly tight channel to the upside. The red circles show when the relative strength went outside the channel to the upside (when rates were extraordinarily low and growth was aceelerating) and when it went outside the channel to the downside (when rates were soaring and growth rates slowed a bit). Currently, the DJUSNS is residing on the bottom of the 15-year relative channel and we're heading into January where internet stocks typically flourish:
ChartLists/Strategies
In a bull market, I love breakouts. As I quickly glanced at hundreds of charts, here are a few that, if key price resistance is broken, could be poised for a big rally. By the way, NEO was provided last Friday as a possible breakout candidate near 20 and, after a selloff on Monday, it's back challenging 20 once again. Here are a few others:
MPC:
DBRG:
VRSK:
DVAX:
SYK:
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 notable 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 that you own or are considering owning.
Tuesday, December 19:
ACN, FDX, FDS, WOR, FCEL
Wednesday, December 20:
MU, GIS, TTC, BB, WGO
Economic Reports
November housing starts: 1,560,000 (actual) vs. 1,360,000 (estimate)
November building permits: 1,460,000 (actual) vs. 1,470,000 (estimate)
Happy trading!
Tom