The last trading session for the month of November passed in the way that we thought it might. We wrote here that there would be something to the monthly rebalancing in November. There had to be after such a strong period, and there would be no disappointment.
Think of it as a group of kids playing in the street. They all stop playing to allow some coming traffic to pass, and then after the last car is out of the way, some kid will yell "game on," and they all start moving from where they were -- as if nothing happened. Can our financial markets do this? Can our markets resume from where they were after allowing for this "monthly traffic" to pass? Knowing that in a month, we'll add quarterly and annual traffic?
The street we kids play on usually gets quiet toward year's end. Can it do so this year?
Forget about managers trying to protect bonuses. This year, in December, the nation will likely authorize in some way at least two vaccines for Covid-19, and move into the logistics of broad distribution. While this is a great cause for optimism, and that optimism is being reflected (almost over-reflected) across nearly every single measure of investor sentiment, this is also a risk. The nation will do this, while working toward the peaceful transfer of power. While this transfer looks to be progressing, there will still be at least some electoral risk through the actual results, not of exit polls, but of the Electoral College. In fact there is still some electoral risk through the Senate runoffs in Georgia.
That puts us in January.
The new workout craze, now owned by Lululemon Athletica (LULU) ? Nope. Try again. It came to pass that Monday would appear as a mirror-like reflection of the month of November. This is exactly what pure rebalancings do. Think of what did well for the month. The Dow Industrials ran 11.8%, the best monthly performance for the blue-chip index since January 1987. That's right, pre-crash. The New York Mets were still defending world champions.
Small to mid-caps ruled the roost, with the S&P 600 and Russell 2000 both up 18% for November, and the S&P 400 up 14%. This was, by the way, the best month ever for the Russell 2000. Oh, and best of all, the Energy sector, as measured through proxy by the SPDR ETF (XLE) , just happened to sport an increase of 28% for November.
So, who led the way lower on Monday? Not a very difficult question to answer. Small to mid-caps were hit harder than large-caps, and of course the Nasdaq indices, after allowing the rest of the market to play "catch up" for the month, suffered the least in the way of professional distribution for the day. Both the Nasdaq Composite and Nasdaq 100 closed virtually unchanged with the "100" actually finishing in the green by a hair. Energy? Of course, the Energy SPDR ETF easily led markets lower, taking a beating of 5.5% for the day.
Breadth for the day was a little difficult to read, and that's just fine. Trading volumes were elevated, but much of that was forced, so much of that can be taken with a grain of salt. Losers beat winners by more than 2 to 1 at the NYSE, and by almost 2 to 1 at the Nasdaq Market Site. Volume at the NYSE was reflective of what one might look for in a selloff.
At the Nasdaq, however, the story was quite different. Even with losers outnumbering winners, advancing volume trounced declining volume for the session, as there were bids under the market all day long for semiconductor and biotech names.
December Trading Thoughts
1) S&P Dow Jones has determined that Tesla (TSLA) will be added to the S&P 500 prior to the opening bell on Monday, Dec. 21. Tesla is already the sixth most valuable corporation by market cap in the "500," so obviously this will have more impact than adding a couple of names to the back end of the index. It has also been determined that Tesla will be added at its full float-adjusted weighting, with some consideration made toward the stock's ability to absorb higher trading volumes. In other words, "they" waited too long to add Tesla to the index and now because "they" did, things could get a bit "messy." I expect to stay long these shares at least until Friday, the 18th. I will probably reduce some exposure earlier that week as this is a big short (to medium) term winner. I don't want to blow it, and I am still doing the math.
2) Though trading in a very tight range for about two months now, Apple (AAPL) has now put together three up days in a row. Don't look now, but since early September, AAPL has placed highs at ever dwindling prices and lows at ever increasing prices. We all know that withering formations (pennants) like this can often foretell explosive moves one way or the other. On Monday, two highly rated sell-side analysts -- Katy Huberty of Morgan Stanley and Ananda Baruch of Loop Capital -- published positive research on Apple. Loop went to a "Buy" from a "Hold" on demand strength for the iPhone, while Huberty was positive on both the firm's services ecosystem and the trajectory for the stock as a 5G play. I remain firmly long Apple. My price target is currently $138, however I see the technical case for $165.
3) Breakout? You may have noticed Advanced Micro Devices (AMD) rally throughout the day to close at the highs, as CEO Lisa Su was presenting at the 24th Annual Credit Suisse Technical (Virtual) Conference. Take a look at the chart. You'll remember it. I showed you the "double bottom" recently.
On Monday, the setup produced the breakout that I had written about. The trick, now that the pivot ($88) has been taken, is to hold that level. If we see $88 hold this week, and I think we see $106 sometime early in 2021. I am long this name, Su is my favorite CEO (admitting that I am biased), and that is my new price target.
4) Sarge, what is your most recent position? Easy. On Monday, I entered into the first tranche (about 1/8 of a full position) of a long position in Corning (GLW) . Why? Well, Corning presented at the Credit Suisse Conference as well. What they told us was that fourth-quarter sales are expected to increase by 5% to 8% sequentially, while operating margin is expected to grow at roughly twice the rate of sales. Hmm. By the way, going back about 20 to 25 years, this was one of the best names to trade on the NYSE floor, and I have fond memories, so again, some bias.
GLW trades at just 20 times forward-looking earnings, which is a discount to the S&P 500. The stock pays shareholders $0.88 annually, currently yielding 2.4%. That's all good, but not why I am getting long this name.
As readers likely know, Corning largely makes glass fiber for a number of high-tech uses. What readers may not have realized is that beyond the vaccine makers, the logistics of bringing salvation to the masses will require not just military precision, delivery services, and local leadership but glass vials. Hundreds of millions of glass vials. Any idea who works with glass, and just gave a rosy outlook for the current quarter? My price target is just $46 for now, but that is preliminary as I still need more information.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 2.8% y/y.
09:45 - Markit Manufacturing PMI (Nov-rev): Flashed 56.7.
10:00 - ISM Manufacturing Index (Nov): Expecting 57.3, Last 59.3.
16:30 - API Oil Inventories (Weekly): Last +3.8M.
The Fed (All Times Eastern)
10:00 - Speaker: Federal Reserve Chair Jerome Powell.
12:00 - Speaker: Reserve Board Gov. Lael Brainard.
13:15 - Speaker: San Francisco Fed Pres. Mary Daly.
15:00 - Speaker: Chicago Fed Pres. Charles Evans.