(11/30/20) Prepare For December's Market Opportunities

Last week the markets rallied in what I can only describe as a predictable seasonal upturn for the US equity market with more bang for our buck due to Covid-19 vaccines, states John Person of PersonsPlanet.com.

On that subject, positive cases globally are on the rise, some countries and US cities are in lockdown, while reports and scientific data reveals a steep decline in terms of percentages in both hospitalizations, and more importantly, deaths. I don’t want to downplay the seriousness of Covid-19, however, the irony is that the flu is back. Also, naturally this time of year, as one would expect, many people are catching colds. However, that is the bad news, sneeze in public even with a mask on and you’re likely to get labeled with a scarlet letter or worse, scorned as the scourge of society. At least that is my observation when making a quick run to the grocery store. The beauty of the market is that it is looking beyond the current environment. The two big questions now are: are stock prices/valuations too high and is the market looking too far ahead…with a telescope? Here are the year–to-date (YTD) and week-to-date (WTD) performance figures:

S&P 500 (SPY) up +14.62%/weekly: +2.36%

NASDAQ 100 (QQQ): up +41.39%/weekly +2.97%.

Dow Jones Industrial Average (DIA): up 6.69%/weekly: +2.29%

Russell 2000 Small Cap Sector (IWM): up 12.56%/weekly: +3.09%

This coming week we have a slew of economic numbers both from abroad and here with Friday's monthly unemployment report. Earnings are sparse, yet we do have a few interesting names (see below). The two most notable technology names are Zoom (ZM) and Salesforce (CRM).

Monday: BMO: (ADNT), AMC: (ZM)

Tuesday: BMO: (MOMO) AMC: (BOX), (HPE), (NTAP), (CRM)

Wednesday: BMO: (PDCO), (RY), AMC: (CRWD), (FIVE), (PVH), (SPLK), (SPWH)

Thursday: BMO: (DG), (EXPR), (KR), (LE), (SIG) AMC: (CLDR), (CULP), (DOCU), (DOMO), (IDT), (MRVL), (SWBI)

Friday: (BIG)

Last week, I took advantage of the rally and pared back some positions, including lightening up on my long SPY position as well as the Jan. 15 Exp. 362/372 bull call spreads in the SPY. This week I will focus on buying some old favorite names like Mosaic (MOS), Raytheon Tech (RTX), and a consumer staple name, Keurig Dr. Pepper (KDP). I also had the “pot” stock Cromos Group (CRON) populate a technical buy signal; this could get some traction for a run up to test $11.00-$12.00 level before the year's out. While I would not rule out a pullback later in the week, I am not selling this market short for any reason, yet. December can be a tricky month as traders pack on more positions in winners and stocks that are underwater tend to get liquidated for tax loss “credit.” End-of-year position squaring, FOMC meetings can spark concerns on future direction on rates, and of course, this is a Presidential election year, and the outcome is in dispute.

Looking ahead in the month of December we have a potential for a “seasonal dip” that can last through the December 16-21 time frame, then look for another strong year-end finish for a potentially strong Santa Claus rally. Sectors that have strong seasonal strength in December include Aerospace & Defense (XAR), Healthcare (XLV), Industrials (XLI), Materials (XLB), Computer Technology (XCI), Consumer Discretionary (XLY), Broker/Dealer (IAI), Grains (DBA), Energy (XLE), Insurance (KIE), and Homebuilders (XHB) & (ITB). While gold and gold miners have taken a major hit, get ready to load up on longs as this sector tends to bottom out after the first week in December. Currently I have a profitable long position in Junior Miners (GDXJ) but placed a put option on as a hedge. I will look to “roll down and out” on the option position rather than add to this trade. See below for my current portfolio positions:

Current Positions:

Option Strategy: Long Morgan Stanley (MS) March 19 Exp. 55/65 bull call spread paid $2.45.
Option Strategy: Long 50% position size in S&P 500 (SPY) Jan. 15 Exp. 362/372 bull call spread paid $3.85.
Option Strategy: Long Nikola (NKLA) Jan. 15 Exp. 30 strike call paid 3.45.
Option Strategy: Long Overstock (OSTK) Jan. 15 Exp. 70/85 bull call spread, paid 3.70.
Long full position in Junior Gold Miners (GDXJ) avg. price $41.46 with Dec.18 exp. 51 put.
Long full position in Walgreens (WBA) $39.22 using Jan. $32.50 put option in lieu of stop.
Long 50% position in Marathon Petroleum Corp. (MPC) $36.58, stops at 37.19.
Long 50% position in JetBlue (JBLU) $14.15, stop at $15.12.
Long 50% position in Schlumberger (SLB) at $19.80, stops at $20.34*.
Long full position in Toll Brothers (TOL) at $47.70, stops at $45.81.