Stock Market Commentary, Analysis and Stock picks - Dec 27

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Santa Rally fizzles out, inflation fears or just the tax losses offset?

The last two days of market action have been underwhelming, especially for those hoping for a stronger Santa Claus rally. Several factors are weighing on the market, including the holiday-shortened trading week, upcoming new administration in the white house, and year-end tax loss control strategies. While the markets initially celebrated Trump’s victory, his policies—such as tariff hikes and healthcare reforms—could bring unexpected surprises, leading to a more turbulent ride ahead.

Despite the recent hiccups, the S&P 500 and Nasdaq are closing out one of their best years on record, with gains of 25.18% and 31.38%, respectively. While we remain bullish over the medium and long term, the short-term horizon calls for caution. On Friday, the stock market closed firmly lower as Big Tech took a hit, with Tesla leading the sell-off. The Nasdaq Composite dropped 1.5% but found support at its 21-day exponential moving average, managing a 0.76% gain for the week.

Meanwhile, the Equal-Weight S&P 500 ETF (RSP) is hanging just above its 50-day moving average but remains below the 20-day moving average, signaling that the broader market is feeling the pressure. Small caps are particularly struggling, as Russell 2000 has tumbled 8.9% since its November 25 all-time high. The Russell 2000 ETF IWM is now below its 50-day EMA and appears poised to test its 200-day EMA around the 215 level if weakness continues.

Investors should stay flexible and adapt to market conditions. Another critical factor to watch is the 10-year Treasury yield, which has been climbing but remains within its three-year range of 3.2% to 5%. A breakout above 5% could signal higher inflation and prompt bond markets to pull capital away from stocks, potentially triggering a market pullback.

For swing traders, these are tricky times. The current environment may require traders to step back and wait for clearer signals. With the broader market flirting with its 50-day EMA, tight stops may lead to frequent exits, making quick decision-making and close monitoring essential to avoid losses.

Last Friday’s (12/20) upside reversal needs to hold for the market rally to stay intact in the short term. If it doesn’t, investors and traders may need to adjust their strategies to navigate the evolving landscape. Flexibility and vigilance will be key as we move forward.

The performance of the different indices is summarized as follows:

Index Friday (12/27) Weekly Monthly YTD 1 Year

S&P 500: -1.11% +0.67% -0.47% +25.18% +24.87%

Dow Jones Industrial: -0.77% +0.35% -3.87% +14.07% +14.17%

Nasdaq 100: -1.36% +0.86% +3.51% +27.62% +27.01%

Nasdaq Composite: -1.49% +0.76% +3.47% +31.38% +30.62%

Russell 2000: -1.46% +0.21% -7.43% +12.11% +9.86%

S&P 500 Sectors: Weekly Performance

Here's how the 11 S&P 500 sectors performed during the last week. We also added last month, 3 months, six months and one year performance for analysis this time:

Sector Weekly Last Month Three Months Six Months One Year

Discretionary (XLY) -1.65% +4.61% +14.61% +25.05% +28.08%

Technology (XLK) -1.33% +2.72% +5.68% +5.28% +24%

Comm (XLC) -0.89% +0.56% +9.34% +14.19% +36.14%

Real Estate (XLRE) -0.81% -9.37% -7.48% +8.30% +4.26%

Industrial (XLI) -0.74% -6.46% -0.67% +10.30% +18.53%

Financials (XLF) -0.73% -4.49% +8.43% +19.93% +31.65%

Materials (XLB) -0.54% -9.46% -11.90% -2.92% +0.32%

Staples (XLP) -0.49% -3.50% -3.76% +4.43% +13.47%

Health Care (XLV) -0.47% -5.02% -8.78% -3.96% +3.88%

Utilities (XLU) -0.29% -7.47% -4.61% +12.07% +24.68%

Energy (XLE) -0.01% -10.36% -2.20% -5.31% +2.38%

The Dow Jones Transport Index has pulled back recently but is now sitting in a sweet spot where a bounce could be in the cards, according to weekly chart analysis. Transport has been a major drag on the Dow’s performance lately, making it a crucial index to keep an eye on.

Shifting gears, the technology sector, has been moving sideways relative to the S&P 500 for the last five months. It’s holding steady and trying to push higher, but if it stumbles, we could see a sharp pullback in Nasdaq and ripple effects across the broader market.

Outside of tech, two other aggressive sectors, Consumer Discretionary (XLY) and Communications (XLC)—have been on fire since September. While they’ve seen a slight pullback over the last two weeks, their strength has been a big driver for the market. If these aggressive sectors continue to lead, they could propel the market to new highs.

Now, let’s talk about the neutral sectors, which fall between aggressive and defensive. Industrials (XLI) have fallen off a cliff recently, Financials are struggling, and Healthcare (XLV) has hit its lowest point of the year compared to S&P 500. However, Healthcare is sitting on a multi-year support level and looks primed for a rebound. Energy (XLE) has taken it on a chin mostly, trending downwards for the last six months.

On the defensive side, sectors like Staples (XLP), Utilities (XLU), and Real Estate (XLRE) have underperformed the S&P 500 for the past three months. Staples and Real Estate have hit 52-week relative lows. Normally, if the market were bracing for tough times, we’d see capital rotating out of aggressive sectors and into neutral or defensive ones. But instead, we’re seeing the opposite, even as market volatility (VIX) climbs back toward 20.

What does this entire discussion mean? Wall Street is still favoring aggressive sectors over defensive ones, signaling confidence in the market’s potential for growth. Investors should consider staying aligned with this trend and riding the wave of aggression as long as Wall Street continues to favor it.

Stay tuned — things could get interesting!

Important Events next week:

Next week will be a shortened week because of the New Year holiday. Not much expected in the week.

Monday (12/30): Chicago PMI (Dec)

Thursday (01/02): Initial Jobless Claims, ISM Manufacturing, S&P Global US Manufacturing PMI

Friday (01/03): ISM Manufacturing PMI (Dec)

Important Earnings this week:

Holiday week. No Earnings Calendar during this week.

Long-Term Stocks:

Our long-term stocks are those in which we have the conviction that they have strong business fundamentals and enjoy moats in their respective industries; hence the chances of long-term profits are high.

MSFT:

Microsoft continues to consolidate at the current level with a 1.39% loss. As such we think it is well poised to move forward and test its previous high of 466.57 and remains our long-term favorite. If an entry is made, then stop loss could be 384 for this long-term leader.

NVDA:

Nvidia tried to move beyond 141.90 but pulled back to 137 although gained 1.71% for the week. Nvidia has been moving sideways (in fact drifting lower slowly) as it is waiting for the semi-conductor group to move ahead after a tremendous run over the last year. We think Nvidia is waiting for some economic or news event and could rise sharply again it is forming a cup w/handle pattern here. Its next buy point is Tuesday’s high at 142 for a re-entry, otherwise wait for the formation to reform.

AAPL:

Apple registered a 0.43% gain for the week bucked but a better entry will be when it consolidates and moving averages catch-up with the prices. Apple remains our long-term favorite.

COST:

Costco now has encountered three losing weeks in a row. Any further pullback to its moving averages around 900-911 will be an opportunity for investors who like this long-term leader and will resurface to capture a good opportunity. Costco is under pressure due to its high P/E ratio compared to other long-term leaders and perhaps this pullback will provide another opportunity for long-term investors to join.

Medium- and Short-Term Picks:

Google:

Alphabet was mentioned two weeks ago as a potential long-term leader and gained another) 0.71% last week. The sharp market pullback was not enough to bring Google below its key moving averages. Looks like it is pausing here before it tries to break beyond the 200 level. It was mentioned that it was likely to come down to 181-185 range which it did and provided a bounce. If that entry was missed, then it is still actionable with a stop loss below 173.

META:

Meta gained 2.49% for the week. Meta’s investment in AI business is paying back and it has seen accelerated revenue growth. Any sustainable move above 601.78 will reverse the short-term pullback and an actionable buy signal targeting its previous high at 637.89 and beyond.

AMZN:

Amazon experienced a 0.52% loss last week but found support at its 20-Days EMA. After a decent run, Amazon could consolidate at current prices before attempting another breakout.

PLTR:

Finally, PLTR pulled back slightly this week by 1.82%. It is in an overbought territory and seems prime to take a pause and consolidate before continuing its advance.

As mentioned earlier, this is another AI winner and for the time being remains market favorite.

Interesting Stocks for Actions and Watchlist:

New Picks:

ETR / NI: We are introducing a utility player this time, although in a defensive sector, ETR has almost gained 50% since July amid a deal with META to establish 3 nuclear power plants for their AI data centers; a move which is also partially shared by META. In other words, this is another AI player although in the Utilities sector. The current pullback provides an entry point with a tight stop loss at 70. ETR also provides a dividend yield of 3.2% at current prices. NiSource (NI) is another utility player which is actionable at the current level with a tight stop loss at 35. NI also provides a dividend yield of 2.9% and either ETR or NI could provide a constant income generator for investors looking for above market yields while bearing good chances of price appreciation.

ZM:

We mentioned Zoom Communications a few months ago but removed it because of its slow-moving action but it is showing good support at current levels and could move upward to test 100 level in a medium term of 3-6 months. Let’s monitor the stock and if it moves upward, crossing 86.24 then it will be an entry for this stock with an 8% stop loss.

Recently Picked Stocks:

TSLA

Tesla gained 2.52% during last week but pulled back by 5% on Friday showing some weakness. The stock might go down to test its break out level at 415.41 before bouncing again. It is still above key moving averages and could continue its journey upwards to test 500 level. The coming week will be particularly important for Tesla to pinpoint its future direction as it discloses fourth quarter and full-year deliveries and production figures in early January. Right now, it does not seem to be at a proper buy point to make an entry.

TSM

Mentioned last week, we reiterate our stance on TSM as an actionable semiconductor stock although it came down below the previous buy point at 205.50. An aggressive entry could be made at current prices, but it is better to wait for a breakout beyond 208.16.

ANET

ANET was flat last week although it tried to break out. First mentioned last month the stock is moving in the desired direction. Suggest moving the stop loss to 100 or 102.49 to secure some profits.

ANF

ANF’s is in a tight weekly range it looks like it is setting up for a move either breaking out beyond 163.96 (at which point the stock will become actionable for an upward move) or moving back to 50-days EMA. Any move below 131.09 will be a sell signal if an 8% loss is not triggered.

ALAB

Astera Labs was a winner again this week with a 7.08% gain and getting close to 150 level.

Again, it is recommended to secure some profits at these levels if you have a minimum of 20-25% profit and keep riding the uptrend as long as it lasts. The stock is expected to test 150 level because of the momentum it has been showing since November.

CMG:

Chipotle lost another 1.76% this week. We have mentioned this stock several times during the past weeks and think that it will ultimately move back to test its previous highs of 69.26. However, the past two-week action demands a hold and wait strategy for the time being.

GE:

GE gained another 1.18% this week. The stock is still actionable, targeting a move above 194.80 while a stop loss below 155.

AVGO:

AVGO registered another gain of 9.79%. Although extended by traditional technical measures, if it moves past 247.28 then there is a chance of moving past 251.21 (aggressive investors could wait for this breakout) and make a new high, otherwise it could drop back to 220.

SPUS

SPUS gained +0.80% last week and is expected to give returns slightly higher than its regular S&P 500 counterpart SPY. It moved up but reversed back to the breakout level at 43.76. If it keeps to this level, then it shows a broader market rally and will become actional. Suggested stop loss at 39.45.

HUBS

HubSpot was mentioned last week but it failed its breakout above 724.61. If it moves above 726.85 in strong volumes, it will be a bullish actionable move targeting previous high at 762.67 and beyond. Till that time, let’s put it in a watchlist.

CCL

CCL was mentioned last week but unfortunately it lost 6% last week. We still think that stock could find support at current levels and if an entry is made then stop loss should be around 23.5 (or 8%). Otherwise, a bullish move above 26 will be desirable.

DOCS

Mentioned last week, Doximity was almost flat last week and still actionable at current prices, eyeing its recent highs of 61.75. Suggest a stop loss below 50.

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