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Stocks could be in for an unusually difficult December, Joule Financial’s Quint Tatro says.

Though the market typically rises in the final month of the year — a phenomenon sometimes labeled the “Santa Claus rally” — there are cracks forming that threaten the historical pattern, he told CNBC’s “Trading Nation” on Thursday.

“We really have a tale of two tapes that most people, passive investors, are completely unaware of,” the firm’s chief investment officer said. “There’s a massive dislocation regarding what’s going on in the indices and the broad market.”

For example, though the Nasdaq Composite index is less than 5% away from all-time highs, about a fifth of its components are hitting 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 go down to the bottom?” Tatro said.

With no clear resolution in sight, he focused on finding names with strong earnings, relatively cheap valuations and the ability to rise in any market environment, settling on CVS Health as one of his favorites.

“They’ve been trading like a retail company and they’re actually moving more into the health-care space,” Tatro said. “We think this company not only can withstand significant challenges on the economic horizon, but we think that Wall Street will wake up one day and realize that this needs to be valued more like a health-care company.”

Between concerns around the new coronavirus variant and the Federal Reserve’s faster-than-expected push to tighten its monetary policy, market risks are indeed rising, Miller Tabak’s Matt Maley said in the same interview.

“It doesn’t mean we can’t have some form of a Santa Claus rally, I just think it may come from a lower level,” the firm’s chief market strategist said. “People need to be a little bit more defensive here.”

Maley’s protection play of choice was energy via the Energy Select Sector SPDR Fund (XLE).

“If you look at the energy stocks, they’ve been outperforming the move in West Texas Intermediate oil,” with the XLE down less than 7% from recent highs versus oil’s 20% decline, he said.

“[The XLE is] not really oversold yet and it may have to go down and test its 200-day moving average down near $52,” Maley said.

“I think that’s going to create a great buying opportunity for the group and I think that’s going to continue to be a good play like it has been for the last year.”

The XLE was down nearly 1% in midmorning trading Friday at $55.23 per share.

Disclosure: Tatro and Joule Financial own shares of CVS Health.

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