On the surface, everything looked fine enough. The second day of our seven-day period with “Santa Claus” seems to be hot.
The president reluctantly signed the $ 2.3 trillion spending bill, which included $ 1.4 trillion to keep the government running until the end of fiscal 2021 and $ 900 billion in relief funds. Covid. Futures markets set the stage for a strong overnight session, well ahead of Monday’s opening bell. Of course, at the end of the day, the Dow Industrials, S&P 500 and Nasdaq Composite would reach record levels, again. However, the longer the day lasted, the more and more that created the rise, as well as the internal aspects of the stock market simply deteriorated.
I wrote to you recently that sometimes things can get a little dangerous this week. They can. Sometimes, despite your best effort to put all the ducks in a row, they just don’t line up.
The US dollar appears to be weaker against most of its reserve currency pairs (but not the yen) this morning (Tuesday). Same as this time on Monday morning (it’s about 4 am Eastern time, as I write this). Just one thing. The dollar basically rose sharply after opening on Monday and then sold strong again. Gold and crude oil moved in opposition to the dollar on each move, while bitcoin, interestingly, remained at high levels. As for stocks, I told you that our focus most heavily on high capitalization ratios, everyone broke records, but this had to be one of the least impressive record rallies to be brutally honest.
Awesome Composition
The headlines read well. However, amplitude and composition would disturb the inquisitive mind. A look at the industry’s performance charts tells investors that, although things look good now, maybe we should go with our heads up.
I don’t care at all to see the Communication Services (when led by the internet), Discretionary Consumption and Information Technology sectors in the leadership. The technology sector was our friend again this year. However, this is misleading. Looking within the technology sector itself, we see that the Dow Jones US Computer Hardware Index rose 3.4%, basically because Apple (AAPL) rose 3.6%. In fact, all FAANG was strong.
The truth is that the hardware brought technology on Monday. The ETF Technology Sector Select SPDR (XLK) was up 1.1% on the day, despite the fact that the Dow Jones US Software and Philadelphia Semiconductor indices contracted for the session (both rounded down to -0.2%). Basically. information technology has recovered without much participation from a wide range of technology stocks.
Also, take a look at the industry performance charts. Numbers 9, 10 and 11 (of 11) may have surprised investors amid a recovery based on expanding deficit spending with the aim of improving the situation for small businesses and families. The sectors at the bottom of the table have all been cycle oriented and perform better when the economy is expanding. The industrial, materials and energy sectors staggered on Monday.
To put an exclamation point in this statement, not only did Dow Transports (part of the industrial sector) close on the same day (as Delivery Services and Trucking thwarted the force on airlines and on the rails), but REITs, Consumer Staples, and Utilities, all of a defensive nature, outperformed the three growth-oriented sectors mentioned above.
Of course, it’s a funny form of rally.
Have more
The breadth, to be honest, was horrible on Monday for a day when the three large-cap indices that the media like to talk about recorded gains of or close to 0.75%. Market watchers must understand that traders have made profits from small and mid-cap stocks. Makes sense. The Russell 2000 is currently on an eight-week winning streak. The New York Jets haven’t done that since 1986. To put that in perspective, the team’s starting quarterback was Ken O’Brien. That was O’Brien’s 26-year season. He’s 60 now.
Even more interesting, while our three big-cap indices were reaching football’s end point at 4 pm Eastern time on Monday, the truth is that the winners barely outnumbered the winners both on the New York Stock Exchange and the Nasdaq Market Site. The declining volume beat the volume increase on Wall Street 11 (yes, even with the record highs), and it really wasn’t even close. However, turnover was very low on the NYSE. In fact, aggregate turnover for constituent members of the S&P 500 was 26% below its own simple 50-day moving average. In other words, he was more asleep than selling these more cyclical type names.
It is not so, although in Times Square. For the names listed on the Nasdaq, the volume increase overcame the declining volume by more than 3 to 2, while turnover returned in aggregate to normal levels. In fact, for the Nasdaq Composite constituent corporations, the total turnover fell 13% above what would be their own 50-day SMA. These dealers were not dozing, they had limited their interest, and that interest, although broader than just a few shares, was centered directly on FAANG.
Oh, remember that I mentioned that the Discretionary had a good day? There is a story there.
Wonder Woman and Retail
It is possible that a $ 2.3 trillion federal stimulus / spending bill – with the hope of an increase in helicopter money still on the table, which would likely add another $ 400 billion to $ 500 billion in size of the package – were it not the motivator for investor decision making on Monday? Yes, it is the short answer.
You all know that “Wonder Woman 1984” is being seen as a relative success (for the pandemic era). The launch of Warner Bros. grossed $ 16.7 million at the box office, which would have been terrible nine months ago. AT&T (T) is the parent company of Warner Bros., and the shares were sold on Monday. That said, AT&T is also the controller of the HBO Max streaming service, and AT&T reported that half of all HBO Max subscribers watched this movie on Christmas Day. Well, this is interesting. It is also very good news for the Walt Disney Company (DIS), Amazon (AMZN) Prime, Apple (AAPL) TV +, Comcast’s Peacock unit (CMCSA). Interestingly, Netflix (NFLX) underperformed the rest of FAANG, as well as the rest of the streaming universe on Monday, as this seriously puts the company’s market share leadership at long-term risk. All of the above can bring new content without going to the bank or the debt markets if they decide not to.
Now, a word about retail. According to data released by Mastercard (MA) SpendingPulse, general retail sales increased 3% year-over-year for the holiday season expansion beginning with Amazon Prime Day in mid-October. Overall pedestrian growth was driven by a furious 49% increase in e-commerce, which means that traditional retailers have plunged into darkness. E-commerce was slightly below the 20% mark for general holiday purchases. For reference, e-commerce accounted for less than 9% of all retail spending in calendar year 2017. Remember, this adds up not only to lost revenue for smaller retailers and retailers who do not do e-commerce very well, but commerce is a much smaller margin business for the retailer than traditional retail. It is much better for the business if customers look for them. Amazon can compensate for the lower margins through advertising.
All the more reason for the rise in Amazon’s stock on Monday. That’s also why Walmart (WMT), Target (TGT) and Costco (COST) did well. They can all subsidize that last mile to stay competitive. That cute store on Main Street? Not so. For them, the delivery of the last mile has a prohibitive cost and they cannot sell ad space.
Inflection point
As we said here today, it was a good day for most of FAANG. Facebook (FB) shot 3.6% to resume the 50-day SMA of that action. Alphabet (GOOGL) added 2.3% on the day, to really centralize the last sale in the middle of a two-month trading range. Amazon rose 3.5% and is now interesting, as the shares looked like a rocket recovering from its 50-day line.
Now Apple is different, at least technically speaking.
We can talk about the iPhone 12 update supercycles as much as we want. This may or may not develop. We can talk about potentially saving wearables. We can talk about the ecosystem and the captive public and that this will continue to evolve into a recurring revenue model. The fact is that all of these are positive and the stock is at an inflection point.
Remember this graph? This was the ascending triangle that we showed you, which makes us expect an imminent break. We now see this escape, or at least part of it. Some may see a saucer here, which would place the pivot on the left side of the cup / saucer or at the $ 138 level. Some may think they see a “flat base”, but it is simply not flat.
What if we move the top of the upward triangle (we are not sure that this is still correct), up to the $ 138 level, as the stock now approaches that point?
Much more impressive, if that’s how it works. Do you know what I think? I think the AAPL goes for $ 165. Finally. For now, that is my goal. As for the panic point, I won’t be selling AAPL anytime soon.
Need to know
The House of Representatives supported President Trump’s demand to increase the individual stimulus payment agreed in the already signed law, from $ 600 to $ 2,000, by a vote of 275 to 134, with 44 of the 275 votes a year coming from Republicans. . The ball now rolls to the Senate with an entire nation, or more specifically the state of Georgia, watching. I believe that Mitch McConnell will put it to a vote. Passage? I don’t know, but that puts the few remaining fiscal hawks in the government in a very difficult political position.
Separately, the Chamber voted even more overwhelmingly to override the president’s veto of the National Defense Authorization Act. This will now also be up to the Senate. While I understand the president’s view of Section 230 of the Communications Decency Act, and I don’t know why anyone on either side of the corridor would object to taking a look at better social media regulation (both sides lost a presidential election in the past two and have had problems with social media in response), this is not the place to do it. Also, as someone who served the flag, I often wondered why the hell I was serving on bases or walking the streets with names of people who took up arms against that same flag. Just saying’.
economy (All Times Eastern)
08:55 – Redbook (weekly): Last 6.5% y / y.
08:30 – Case-Shiller HPI (October): Expecting 6.9% y / y, Last 6.6% y / y.
16:30 – API oil inventories (weekly): Last + 2.7 million.
The Federal Police (All Times Eastern)
No public appearances scheduled.
Today’s earnings highlights (EPS consensus expectations)
No significant quarterly earnings scheduled for disclosure.
(Amazon, Alphabet, Apple, Facebook, Disney, Mastercard, Costco and Walmart are stakes in Jim Cramer’s Action Alerts PLUS club club. Want to be notified before Jim Cramer buys or sells these shares? Learn more now.)
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