Quint Tatro of Joule Financial said stocks could get through an unusually difficult December.
Although the market usually rallies in the last month of the year – a phenomenon sometimes called the “Santa Claus Rally” – cracks appear that threaten the historical pattern, he told CNBC Trading Nation Thursday.
“We do have a story about two entries that most people who are passive investors are completely unaware of,” said the company’s chief investment officer. “There is a serious dislocation in what is happening with the indices and in the market as a whole.”
For example, while the Nasdaq Composite is less than 5% of all-time highs, about a fifth of its components are making 52-week lows, and nearly two-thirds are trading below their 200-day moving averages, which serve as key long-term price indicators.
“The question is, does the bottom catch up to the top or does the top sink to the bottom?” – said Tatro.
With no clear cut decision, he focused on finding names with high incomes, relatively cheap pricing, and the ability to grow in any market environment, picking CVS Health as one of his favorites.
“They trade like a retail company, and in fact they are moving more into the health sector,” Tatro said. “We think that this company will not only be able to withstand the serious challenges on the economic horizon, but we think that one day Wall Street will wake up and realize that it needs to be valued more as a healthcare company.”
In the same interview, Miller Tabak’s Matt Mailey said market risks are indeed on the rise between fears of a new coronavirus variant and faster-than-expected monetary tightening efforts by the Federal Reserve.
“That doesn’t mean we can’t have some form of Santa Claus rally, I just think it can happen from a lower level,” said the firm’s chief market strategist. “People here have to be a little more defensive.”
Mali’s preferred defensive play was energy through the Energy Select Sector SPDR Foundation (XLE).
“If you look at energy stocks, you see them outperforming West Texas Intermediate oil gains,” with the XLE falling less than 7% from recent highs compared to a 20% drop in oil, he said.
“[The XLE is] is not actually oversold yet and may have to drop and test its 200-day moving average to around $ 52, Maylie said.
“I think this will create a great buying opportunity for the band and I think it will continue to be a good game, just like last year.”
XLE fell nearly 1% in mid-Friday morning trading to $ 55.23 a share.
Disclosure: Tatro and Joule Financial hold shares in CVS Health.
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