Yearly recap, Commentary, and Stock picks Jan 3, 2025

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Happy New Year 2025!

The first week of the year has certainly been eventful, with the last two days of December and the first two days of January setting an intriguing tone. January holds significant importance for the stock market, as the old saying goes: "As goes January, so goes the year." The market's performance this month often provides valuable clues about the year ahead.

December closed on a surprising note, with the traditional Santa Claus rally failing to materialize, ending the month in the red—an unusual occurrence since 1950. Expectations of a late-year rally were dashed as the market gave back some of its November post-election and early December gains. Value-oriented stocks, often favored in December for their dividends, also saw lackluster performance. Notably, the Real Estate sector, which typically excels during December, ended as one of the worst performers, reflecting the market’s erratic behavior and likely profit-taking after substantial runs in the Mag7 stocks.

The performance of the different indices is summarized as follows:

Index Friday (01/03) Weekly Monthly YTD 1 Year

S&P 500: +1.26% -0.48% -0.47% +1.03% +26.31%

Dow Jones Industrial: +0.80% -0.60% -4.41% +0.44% +14.16%

Nasdaq 100: +1.67% +0.68% +0.46% +1.49% +30.29%

Nasdaq Composite: +1.77% -0.51% +0.72% +1.61% +34.47%

Russell 2000: +1.49% +0.92% -6.22% +1.57% +16.93%

The weekly performance could have been much worse had the rally attempt not occurred on Friday with broad market gains. Dip-buying investors seized opportunities, helping the Nasdaq Composite emerge as the strongest index. It bounced from its 50-day EMA and closed back above its 20-day EMA line. This is significant, as there was a real likelihood of markets breaking critical support and falling further. However, it is still too early to declare the markets out of the woods. Sideways Choppy action remains a possibility, requiring us to gauge the situation daily. Staying nimble and cautious is key unless a strong follow-up day confirms bullish momentum. The S&P 500 is currently hovering at its 50-day EMA line and needs to break above its 20-day EMA to solidify a bullish bias.

On the other hand, market breadth is not where we would like to see it. The Equal Weight S&P 500 ETF (RSP) is under both its 50-day and 20-day EMA lines and certainly has a lot of work to do. In other words, the market is favoring certain stocks such as Meg7 (and our long-term stocks), but a lot of other stocks are showing a subpar performance at the most. This goes in our strategy whether we are invested in the “leading stocks in the leading groups” or not?

S&P 500 Sectors: Weekly Performance

Here is how the 11 S&P 500 sectors performed during the last week.

Sector Weekly Performance Last Month

Discretionary (XLY) -1.68% +1.00%

Energy (XLE) +3.44% -6.67%

Technology (XLK) -0.73% -0.28%

Communications (XLC) -0.29% -1,.87%

Real Estate (XLRE) +0.74% -6.31%

Industrial (XLI) -0.41% -6.08%

Financials (XLF) -0.33% -3.28%

Materials (XLB) -2.06% -11.43%

Staples (XLP) -1.22% -4.55%

Health Care (XLV) +0.01% -4.93%

Utilities (XLU) +1.31% -3.40%

An Important Perspective for 2025

As we move forward, keeping a close eye on riskier assets will be pivotal. This includes sectors such as Technology, Discretionary, Communications, and the Meg7 stocks, all of which play a critical role in shaping market momentum. At the same time, defensive sectors like Healthcare (XLV) and Utilities should not be overlooked. Utilities are gaining attention due to strong support levels and significant developments as companies adapt to the AI-driven era.

The Communication sector (XLC) continues to stand out, with its robust historical performance over the past 5-10 years. Key players like Alphabet (GOOGL) and Meta remain firmly on our radar. Meanwhile, home construction stocks, after experiencing a sharp 33% decline since October, are nearing critical support levels. These conditions could present compelling rebound opportunities for discerning investors.

As highlighted in prior analyses, Wall Street appears to favor aggressive areas over defensive ones, reflecting a confident outlook on the market’s growth potential. An example is DJUSSC (Dow Jones Semiconductors group) which is trying to break out from its recent consolidation. If it breaks out it will cause most semiconductor stocks (AVGO, AMD, ARM, ATOM etc.). Investors should remain aligned with this trend, leveraging the momentum in these sectors/groups as long as Wall Street continues to favor a risk-on approach.

Important Events next week:

Following economic events will occur in the coming week:

Monday (01/06): S&P Global Service PMI (Dec)

Tuesday (01/07): ISM Non-Manufacturing PMI (Dec), JOLTS Job Openings (Nov)

Wednesday (01/08): ADP Nonfarm Employment Change (Dec), FOMC Meeting Minutes

Thursday (01/09): Initial Jobless Claims, 30-Years Bond Auction

Friday (01/10): Nonfarm Payrolls, Unemployment Rate

Important Earnings this week:

Not a very busy week as earnings for Q4 2024 will start coming out next week.

Wednesday (01/08): Albertsons (ACI)

Thursday (01/09): KB Home (KBH)

Friday (01/10): Walgreens (WBA)

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: Among Meg7 stocks, Microsoft was the worst performer in 2024 with only a 12% gain. Last week’s fall let it test 200 days EMA line from which it bounced. The range from 384-415 provides decent support to this long-term stock and any further test of the 200-days EMA line (416.40) will again attract the value buyers of this long-term leader.

NVDA: Nvidia successfully moved pass 142 triggering a buy signal for anxious investors who pushed it to 144.47 on Friday. This is a positive move as the market is waiting for the upcoming CES event which will start with an opening talk by Nvidia CEO late Monday. We believe Nvidia is now at a critical juncture and any positive vibes from its CEO on its business will push Nvidia beyond past its all-time highs at 152.88. The current formation has provided for an early entry at the current prices with a tight stop loss of 8-10%.

AAPL: Apple has come under some pressure as it has cut down iPhone prices in China to combat competition from Huawei and other Chinese competitors. Nevertheless, it remains our long-term favorite and any further weakness to 230-235 range will provide an opportunity for dip buyers to accumulate more shares.

COST: Costco now has encountered four losing weeks in a row. As mentioned earlier, it tested the 900-911 range and provided an opportunity for investors who like this long-term leader. Although a long-term leader, we think that it could further drift below this level and anything close to 866 will make Costco very attractive from a long-term perspective.

Medium- and Short-Term Picks:

Google: Although Google lost 0.50% last week but we think it is another opportunity for investors for high risk-to-reward entry at current prices as it bounced from the 20-Days EMA line with a stop loss below 180 level. It is part of the Communications sector which has January and May being the bullish months.

META: Meta gained 0.80% for the week. Being another strong player in the Communications sector, the chances for Meta to go back and test its high at 637.89 are high. As mentioned last week, this is an actionable buy signal for this Meg7 stock.

AMZN: Amazon was almost flat last week with mild gains. It is consolidating in a narrow before attempting another breakout. Aggressive investors could add to their positions to take advantage of this minor pull-back.

PLTR: After pulling back, PLTR gained 6% on Friday to close the week at 1% gain. Aggressive investors could make an entry to target its previous high at 84.80 while maintaining a stop loss of 10%.

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

Interesting Stocks for Actions and Watchlist:

New Picks:

AMD: Although AMD has come down a lot during the last 7-8 months, it is close to strong support and has already tested a low at 117.90. It seems bound to test 135 and beyond. A sustained move could even lead it to 167-174 range.

GEV: GE Vernova Inc. designs and manufactures technologies to create a sustainable electric power system, enabling electrification and decarbonization. The stock is showing strength and trying to move out of an 8-week consolidation to test its previous highs at 356.82. It is actionable as an early entry at current prices. Beware that it has earnings scheduled for 22nd January and we would like to have some profit cushion to avoid that day’s volatility.

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: We again reiterate our stance on TSM as an actionable semiconductor stock although it came down as it bounced back from the previous buy point at 205.50. It has moved past 208.16 and seems like a sound

Semiconductor player as the group itself is trying to make a move.

ANET: ANET continued to show strength with a gain of 1.92% last week. First mentioned in November, the stock is moving in the desired direction and is actionable again if it crosses 116.94. Suggest moving the stop loss to 100 or 102.49 to secure some profits.

ANF: ANF gained 3.28% last week and is setting up for a move either breaking out beyond 163.96 (at which point the stock will become actionable for a move) or moving back to 50-days EMA. Any move below 135 will be a signal if an 8% loss is not triggered.

ALAB: Astera Labs came back strongly on Friday with a 4.68% gain to end the week on almost a flat note. Looks like it is consolidating in a narrow range before trying to attempt for another high.

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.

GE: GE gained another 1.11% this week. The stock is still actionable, targeting a move above 194.80 while a stop loss below 157AVG.

AVGO: AVGO registered a loss of 3.81% last week. 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.

ETR/ NI: We mentioned ETR and NI as two potential Utilities last week. ETR gained 1.21% last week while NI lost 1%. ETR is still in a buy range with a stop loss at 70. ETR also provides a dividend yield of 2.95%NI at current prices. NiSource (NI) is also actionable at the current level with a tight stop below 34.

CCL: CCL lost another 2.52% this week and very close to our earlier stop loss but stock still has a chance since it is bouncing off from its 50-days EMA. Aggressive investors could still make an entry with a tight stop loss below 23.5 (or 8%) since this could be a temporary pullback.

DOCS: Mentioned two weeks ago, Doximity lost was 4.43% last week although gained 3% on Friday. It is still actionable at current prices, eyeing its recent high of 61.75. Suggest a tight stop loss below 50.

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