Market review 24.12.07
Follow price but be aware of the warning signs
Hello everyone,
Price action remains unquestionably bullish, with high beta, cyclicals, and growth areas leading the charge. In today’s report, we’ll look at the market’s strength, but I’ll close by reiterating the various warning signs that have been accumulating all year.
Market Leadership
At the asset/sector level, mega-cap tech and crypto continue to lead. Financials, e-commerce, airlines, and precious metals also stand out. Energy stocks remain weak.
Consistent with the above, XLY is the sector with the highest SCTR ranking while XLE is the second lowest. Markets continue to thrive on the belief of a soft landing: inflation has been tamed resulting in a continued easing of interest rates and a rebound in economic activity.
At the country/regional level, the US is leading. Canada, Japan, and Germany are the other developed countries showing strength, with the TSX and DAX indices making new all-time highs this week.
Let’s go over some of the leading areas in more detail.
Consumer Discretionary
Last week, we looked at the recent breakouts in the EBIZ and XRT ETFs.
The Dow Clothing Subindex was up 11% this week, thanks to a big gain in LULU. GAP is setup nicely here:
E-commerce stocks that are at or near 52-week highs include AMZN, SHOP, GLBE, BKNG, and SE. GRAB is a name I featured previously – it made a major breakout in late Oct:
We also previously looked at the beautiful base on CCL (Carnival Cruises). Both CCL and JETS (Airlines ETF) made a big breakout in early October:
Nothing tells the “soft landing” story like the strength of cruise ship and airline stocks. Lower oil prices and interest rates translate to higher revenues (demand) and lower operating costs for these companies.
Crypto (with a feature on Ethereum)
The most high-beta segment of the market continues to lead.
Bitcoin hit a significant milestone this week by surpassing the $100K level. The 5x rise in Ripple (XRP) over the past 4 weeks also got a lot of attention. Privacy coin Monero (XMR) is making a 3-year breakout:
Lost in the BTC, XRP, and meme coin excitement, ETH quietly crossed above $4,000.
Over the past couple of years, Ethereum steadily lost significant market share to Bitcoin and Solana. The market believes Bitcoin has won the Store of Value (SoV) game and is Digital Gold. It believes Solana, Sui, and others, with their faster speeds (low latency) and high scalability (throughput), can be the dominant infrastructure for Web3 / DeFi. Hence, the “Ethereum is dead” sentiment.