• Futures were lower overnight after a big post-Fed afternoon rally on Wednesday
• The Fed hiked the fed funds rate by 50 basis points, as expected, after its latest 2-day deliberation
• The big afternoon surge came after Fed Chair Jay Powell said the Fed would not get "more aggressive" in hiking rates (as if 50 basis points were not aggressive enough)
• Earnings disappointments continue to play a big role in downtrending U.S. equities
• Shopify (SHOP, -16.92%) missed both revenue and EPS estimates, highlighting the troubles in the software group ($DJUSSW, -4.89%) right now
• All 11 sectors are lower, with consumer discretionary (XLY, -4.93%), technology (XLK, -4.00%), and communication services (XLC, -3.48%) scraping the bottom of the barrel
• Gold ($GOLD, +0.56%) and silver ($SILVER, -0.55%) are slightly higher, leading commodities that are primarily flat
• The 10-year treasury yield ($TNX) is soaring 17 basis points to 3.09%, likely a primary culprit in today's U.S. equity weakness
• At last check, the NASDAQ is leading to the downside, down nearly 600 points, or 4.30%
• Again, let me restate that equities tend to be extremely volatile when we see Volatility Index ($VIX, +19.67%) readings in the 20s and especially the 30s

Market Outlook

The NASDAQ 100 ($NDX) roared ahead yesterday afternoon, but did you notice that it eclipsed key short-term price resistance intraday, but failed to do so at the close? Check this out:

The failure at resistance is obviously one technical issue that's difficult to ignore, but the real problem in the intermediate-term is that the NDX:SPX ratio is right back at its low. There is NO rotation into the more aggressive NASDAQ that suggests a bottom is here or approaching. That's my big problem right now. I need signs of bullish rotation and I'm just not seeing it.

Sector/Industry Focus

In the final 60-90 minutes yesterday, we saw a BIG rally in the market after the Fed policy statement, but we cannot lose sight of the more intermediate-term technical and sentiment issues that we're facing. I am not at all surprised that we've given back yesterday's big afternoon gains. On the surface, it appears as though we went up and back down and nothing changed cumulatively. But I don't believe that's the correct way to view this. Changes occurred "under the surface" during that "nothing has changed" period. Below is a just a quick glance at the S&P 500, NASDAQ, one key relative ratio (XLY:XLP), and several key sectors so that you can see the rest of the story:

Notice what has outperformed over the last 20 hours and what has underperformed. It looks as if we've just gone up and down, which we have. However, there's been further rotation during this period from aggressive areas to defensive areas and we've seen extremely heavy volume. I can't provide any guarantees, but it sure does look to me like Wall Street sees further weakness ahead. How else can we explain this bearish rotation? In particular, check out that XLY:XLP relative chart. That speaks volumes to me.

ChartLists/Strategies

Of the 8 stocks I provided yesterday afternoon, a few reported either last night or this morning. Relative strength is weak across the board, but a few show at least hints of accumulation, while others not so much. Check out the major hits to SHOP, EBAY, TWLO, and ETSY, all of which showed weak AD lines:

SHOP:

EBAY:

TWLO:

ETSY:

Of these 4, SHOP looks the worst to me. Its AD line is horrific, as I pointed out yesterday. It missed both its revenue and EPS estimate, which is not totally surprising when you consider how poorly Wall Street has been treating the stock since November 2021. When stocks are at lofty expectations purely based on growth prospects and inflation, higher interest rates, and a weakening economy all come along simultaneously, valuations collapse. It doesn't mean SHOP is a bad company. It's a combination of missing expectations and a very poor environment for growth stocks. Still, I'm a momentum investor, so I have no interest in a stock like SHOP until it shows improving relative strength and momentum. Its gap beneath prior support has a bad technical look as well.

EBAY's AD line looks equally bad to me, but it does have price support that it's attempting to cling to. Still, show me relative strength or show me the exit.

TWLO gapped higher after better-than-expected EPS, but its AD line is very weak and its relative strength vs. the software industry ($DJUSSW) is really awful. No thank you.

The one that I give a bit more hope to is ETSY. With a decent finish today, we could see its AD line break to a multi-month high and perhaps even challenge its one-year high. Despite its big gap lower, it opened above key price support. After trading briefly in break down territory, it's recovered. Many times, I've seen bottoms form just like this. Still, ETSY's relative strength has been horrid, so pulling the trigger here is not a slam dunk. But I could see a rally back to the 20-day EMA. Just be sure to keep a closing stop beneath 92.

Earnings Reports

Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include several companies with market caps below $10 billion. Finally, any portfolio stocks that will be reporting results are highlighted in BOLD. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning.

Thursday, May 5:

COP, BUD, ZTS, BDX, EOG, VRTX, D, ICE, SQ, SHOP, APD, MELI, SRE, BCE, ILMN, MCK, MNST, RSG, DDOG, PH, ED, LCID, APO, APTV, MTD, NET, DASH, CBRE, MT, BLL, RPRX, LYV, AEE, K, VTR, PBA, PPL, RCL, WPM, FLT, HUBS, BILL, OWL, PODD, TRGP, TRMB, PWR, EPAM, CAH, ARGX, EVRG, NLOK, AMH, WRK, NWSA, CGNX, LAMR, PCTY, MMP, DVA, CCJ, ZG, W, FND, HII, CFLT, DBX, OGN, DLB, BERY, RGA, AVLR, MP, GH, OLED, PENN, UNM, WCC, ADT, SYNA, BLD, SAIL, TXRH, INGR, MTZ, PRI, SEAS, HBI, OPEN, AL, FOUR, WWE, CROX, BECN, TDC, NTLA, IRTC, APPN, NTRA, PGNY, BE, PZZA, ALRM, HAIN, BCC, NKLA, SPWR, VIR, PBH, AXNX, INSM, FTDR, SHAK, IHRT, YELP, ATSG, MDRX, NTCT, KTB, TDS, GOGO, VSTO, SPCE, SWI, AAWW, KTOS, NOG, SBH, HCC, CDNA, MYGN, TGH, SKT, TVTY, TWST, PLYA, GDOT, CRSR, AMCX, GPRO, CNXN, RDFN, AOSL, DVAX, BKD, TREE

Friday, May 6:

ENB, CI, TU, IEP, DISH, AES, DKNG, VST, NRG, ESNT, GT, SR, FLR, SPB, BLDP, GTN, SSP, PRLB, IMGN, RUTH

Economic Reports

Initial jobless claims: 200,000 (actual) vs. 178,000 (estimate)

Q1 productivity: -7.5% (actual) vs. -2.5% (estimate)

Happy trading!

Tom

• Futures were higher once again this morning and we've seen mostly positive action throughout the day
• Small and mid caps are leading the charge, especially the former
• Consumer discretionary (XLY, +1.05%) and communication services (XLC, +0.75%) are the best performing sectors on the session
• Historically, May 26th (today) starts a 10/11 day bullish period as the S&P 500 has an annualized return of +32% during this period since 1950; the NASDAQ's annualized return tops 48% since 1971
• Renewable energy ($DWCREE, +4.99%) and automobiles ($DJUSAU) - see Sector/Industry Focus below - are today's best performing industry groups
• Aluminum ($DJUSAL) is testing its 50-day SMA for the first time since February and bouncing thus far
• Ford Motor (F, +7.38%) is the best performing S&P 500 company today, while Nike (NKE, +2.09%) is the only Dow Jones component gaining more than 1%

Market Outlook

Transportation stocks ($TRAN) remain strong, so I thought it was important to provide you not only an update of the index, but also the component industry groups:

I see a very strong uptrend channel in play for transports, bullish for U.S. equities in general. When transports do well, it's hard to argue for anything other than a strengthening economy ahead.

Looking at the 3 panels beneath the TRAN chart, airlines have been the relative weakling over the long haul, but their relative strength does continue to improve. Railroads and truckers have both been trying to break to new relative highs. Should they find success in doing so in the weeks and months ahead, that would add further bullishness to an already bullish chart.

Sector/Industry Focus

Automobiles ($DJUSAU, +3.06%), the best performing industry group of 2020, is bouncing off key support and being led by a big advance in Ford Motor Co (F, +7.38%). Tesla, (TSLA, +2.92%) is also gaining strength and testing its 20-day EMA from underneath today. Here's the latest technical outlook on the DJUSAU:

The group is attempting a 20-day EMA breakout of its own. The last two lows mark a significant double bottom. I'd expect the autos to perform well from here, while a breakdown beneath 730 would likely result in much further selling ahead. I don't see it happening.

ChartLists/Strategies

Gamestop Corp (GME, ++12.94%) and AMC Entertainment Holdings, Inc. (AMC, +15.00%) are at it again. Both have had excellent showings this week. GME has broken above key price resistance and buyers are trampling sellers. AMC easily cleared resistance just below the 15 level and is now quickly approaching the January high of 20.36. It reminded me of the huge short squeeze from January, even though the short interest is much lower on GME and AMC now than it was then. Both still have fairly high short interest, however, so a bullish reaction to these breakouts is much more likely.

I will be updating the Short Squeeze ChartList (SSCL) over the course of the next week or so, but I went through each chart on our current list to see if any were threatening what I'd consider to be potential breakouts and/or short squeezes. We really want to see the volume beginning to rise as that is a necessary component of a squeeze. Here are 6 that are worth watching, in my view:

ASO:

I see two potential problems here. First, the specialty retailers ($DJUSRS) are struggling vs. the S&P 500 and, second, there's a negative divergence on the PPO. A false breakout could be problematic. A high volume breakout would trump that negative divergence, however, so keep an eye on this one.

GOGO:

Full Disclosure: I own GOGO shares.

I liked GOGO for its short squeeze potential and it's price action is cooperating. However, it is light on volume for a short squeeze. In other words, short sellers are not "throwing in the towel" just yet. Perhaps that's a good thing as that could result in further buying and panic in the days to come. Or maybe we're seeing a head fake to the upside. I'm watching the rising 20-day EMA closely. Failure to hold that would likely take me out of this position.

KOSS:

This one is extremely volatile and we've seen many head fakes over the past several months. When volume rises, the history here is to see gaps higher, but KOSS hasn't really sustained any of its recent surges. If I traded this one, I'd be very tempted to sell on gaps higher. Because of the severe volatility in both directions, I'd also consider keeping any positions very light.

BYND:

BYND has risen roughly 25% in a little more than a week. Right now, it's testing a key level - its 50-day SMA. Breaking above that moving average would likely begin to trigger at least a bit of short covering. Volume has definitely picked up in recent days, so further upside price action will put pressure on shorts.

BBBY:

BBBY still has some work to do. That bold red arrow is pointing to a key gap resistance. I wouldn't be overly concerned about my short position (if I had one) unless gap resistance was cleared. Doing so could very well trigger much more buying among shorts.

MAC:

MAC is in the real estate sector, a group where I normally wouldn't be looking for violent upside action. It does have a significant short position, though, and it's now trading at its highest level since the end of January. For a true short squeeze, MAC will need to trade much heavier volume.

Earnings Reports

Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks that will be reporting results are highlighted in BOLD. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning.

Wednesday, May 26:

NVDA, PDD, SNOW, BMO, WDAY, OKTA, LI, AGL, WSM, UHAL, DXC, CPRI, DKS, NTNX, APPS, AEO, PSTG, ANF, ZUO, ELF, QADA, DBI, NXGN, PLAB

Thursday, May 27:

CRM, MDT, COST, RY, TD, DELL, VMW, ADSK, CM, DG, HPQ, VEEV, BBY, DLTR, BURL, ULTA, GPS, ATHM, PLAN, ASND, OLLI, BOX, DOMO, GES, YEXT

Economic Reports

None

Happy trading!

Tom

We are having our Q1 Earnings webinar after the close today. The room will be open by 4:00pm EST and we'll start promptly at 4:30pm EST. A link to the room is provided on our website (home page).

The Strong Earnings ChartList (SECL) has been updated through the earnings reports released on Friday, April 24th. There are currently 112 charts on this list. I removed 80+ charts as these companies are nearing their earnings dates. If they report strong results (beating revenue and EPS estimates), show relative strength, and also have a solid accumulation/distribution line, they'll be added back to the SECL. This list will grow significantly over the next few weeks as thousands of companies report their latest results.

If you're an Extra member or above at StockCharts.com, you can download ChartLists that I provide (eg, SECL) directly into your StockCharts.com account. Make sure that you're signed into StockCharts.com first. Then go to the ChartLists page at EarningsBeats.com, find the ChartList you'd like to download and follow the instructions provided. It's a fairly simple process that should take you no more than 10-15 seconds once you become used to it. If you have any issues, feel free to contact us at "support@earningsbeats.com".

Finally, I'm returning to our prior layout for the Daily Market Report (DMR) today. Enjoy!

Executive Market Summary

• Futures were strong to open the week, buoyed in part by strength in Asia and Europe
• The 10 year treasury yield ($TNX) is up 5 basis points to 0.65%, aiding equities, particularly financials (XLF, +3.04%)
• Real estate (XLRE, +2.60%), consumer discretionary (XLY, +2.38%), and industrials (XLI, +2.08%) are all up more than 2% today
• Energy (XLE, +0.61%) remains under pressure on a relative basis as crude oil ($WTIC) tumbles another 26%
• Gold ($GOLD) is down $11 per ounce to $1724 as volatility ($VIX, -8.93%) quiets; GOLD historically benefits from a fearful market
• The FOMC begins a two-day meeting tomorrow with a policy decision scheduled for 2pm EST on Wednesday
• Earnings reports will kick into high gear later this week; Alphabet (GOOGL) reports on Tuesday after the bell
• We have no active trade alerts at this time

Market Outlook

U.S. indices are rallying once again, confounding those who only see the pessimistic side of things. Yes, the pandemic is real and it's a major health crisis. But the 1918 pandemic resulted in a Dow Jones that rose 10% in 1918 and 30% in 1919. A health crisis can be reason to panic for health reasons, but don't let it affect your financial decisions. The 1918 pandemic also happened to take place alongside World War I. If the underlying current is one of a secular bull market, never lose sight of that fact. Wall Street is accumulating hundreds of stocks as I've written about endlessly since accumulation/distribution lines took a turn to the upside in early March. We remain in a secular bull market that I believe will last at least another decade.

I don't know how the balance of 2020 will play out. But I'd bet there's a much better chance we'll see an all-time high, especially on the NASDAQ 100 ($NDX), in 2020 than a retest of that March low. Lows like that form when individuals cannot take any more pain and simply sell at any cost. The Volatility Index ($VIX) rises to crazy levels and bottoms form. I'd bet that with a VIX reading above 80 in March that a bottom formed that none of us will ever see in our lifetime again.

It's just my opinion so feel free to disagree.

Sector/Industry Focus

Computer services ($DJUSDV) have shown tremendous absolute and relative strength since early March. Check out the current technical picture:

When I see strength like this, the first thing I do is look for companies on the SECL and Strong AD ChartLists that belong to this group. So, for example, if I pull up the Strong AD ChartList in "Summary" form and then type in "Computer Services" in the search box, here are the results I get (ranked in high-to-low SCTR order):

While RNG has been exceptionally strong throughout this pandemic, my immediate attention is drawn to the stock on this list with the highest percentage gain today - CACI:

This has been SO typical of what's taken place in March and April. Prices move lower on many stocks, reacting to the enormous fear. All the while, Wall Street is happy to accumulate while individuals are panicking out of positions. You can see it clearly on the rising accumulation/distribution line that I've been discussing for weeks now. You want to remain on the bullish side and not be swayed by all the naysayers and fear mongers. Most media outlets care only about ratings. So called "journalists" spew their opinions everywhere, but most have absolutely no financial or stock market background. It's truly a shame. Stick with our ChartLists that have clearly been working. Unless the rotation changes in a major way, which I'll be watching (and adjusting to, if necessary), we have the best approach to this current market environment.

Active Trade Alerts

We have no active trade alerts at this time.

Strong Earnings ChartList (SECL)

I ran a scan of SECL stocks that have traded at least 75% of their normal daily trading volume as of 11:40am EST. The 5 stocks were AXTI, DGX, SNBR, WSM, ZM.

Featured Chart from this scan:

WSM:

The bears are really getting into serious danger now, because a new batch of stocks like WSM that didn't perform so well during the March selloff and saw its AD line suffering are now bouncing back with a fury! The PPO has turned positive and WSM is attempting to clear a major price hurdle at 60. It needs to close above that level, especially with volume building today.

Strong and Weak AD ChartLists

Personally, I focus on long trading candidates, as opposed to short candidates. The stock market is behaving quite bullishly so let's run a scan on the Strong AD ChartList. Today, I looked to see Strong AD stocks that are trading with an RSI below 50. Here were the 10 stocks returned:

EHTH, HRL, LLNW, SAFE, TAL, TIF, TOCA, TR, VSTM, and WEC.

Featured Charts from this scan:

EHTH:

The AD line was been very strong here with EHTH and the stock is moving closer to price support in a very wide trading range. The reward to risk seems to be growing with every tick to the downside. Friday was a rough day for EHTH with a huge red-filled candle. But we haven't seen many of those lately, so the odds are we could see a rebound later today on EHTH. Given the zero-commission trading environment, building a position on EHTH during a period of further weakness would make sense as well.

WEC:

First, WEC is a utility so that might provide a bit more safety for those who are more risk-averse in their trading routines and strategies. 92 has proven to be a key pivot point and price support level for WEC and we're nearing it on the recent selling. I'd consider the current trading range to be 92-100, so the odds seems to favor longs at this point.

Earnings Reports

Here are the key earnings reports for today and tomorrow, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks (or active trade alerts) that will be reporting results are highlighted in BOLD. After today, I'll be placing an asterisk (*) next to stocks that are showing excellent relative strength and accumulation/distribution lines heading into their respective earnings report. In my judgment, I'd expect strong results and guidance, although correctly predicting which way a stock might gap after an earnings report is much more difficult. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning:

Monday, April 27:

CNI, KDP, NXPI, PPG, ARE, CMS, CHKP, CINF, BRO, CE, UHS, CGNX.  Others less than $10 bil:  BRO, CE, UHS, CGNX, PKG, FFIV, OMF, AMKR, CNX, LRN

Tuesday, April 28:

GOOGL, MRK, PFE, NVS, PEP, SBUX, UPS, MMM, BP, MDLZ, SPGI, AMD, CAT, ECL, CNC, VALE, ROP, DXCM, TAL, MSCI, IQV, SIRI, TROW, TEL, CERN, CMI, CSGP, ROK, DTE, F, YUMC, BSBR, AKAM, LUV, GLW, DHI, MXIM, AGR, BXP, TRU, PAYC, OKE, WAT, YNDX, NUE, OMC, MASI, ZBRA. Others less than $10 bil:  CHRW, MPWR, JNPR, MKSI, MRCY, PII, XRX, HELE, HOG, WERN, LSCC, FEYE, MTH, IRBT

Economic Reports

None

Happy trading!

Tom

• Another disappointing ISM report, this time non-manufacturing, triggered selling at 10am EST
• Our major indices have recovered most of those early losses with the NASDAQ now positive
• Two defensive groups - consumer staples (XLP) and real estate (XLRE) - are leading
• Technology (XLK) also strong with both semiconductors ($DJUSSC) and software ($DJUSSW) showing strength
• 10 year treasury yield ($TNX) down another 6 basis points to 1.54%
• Factory orders for August were not as weak as expected
• 3 alerts now out with ROKU (+3%) higher, while ZBH and NOC are relatively flat on the session

Market Outlook

It's been a rough few days for transportation stocks ($TRAN), which have fallen back from testing overhead price resistance near 10800. But now the group is faced with a key price support test. Will it hold? I say yes:

This is a good time to consider solid-looking charts in the transportation area. If transports break down, you can keep tight stops in play. Check out the "Today's Movers" section below for possible candidates.

Sector/Industry Focus

Healthcare (XLV) is the one sector that is on the verge of losing key price support from the August lows. We need to watch this carefully and avoid the group so long as its relative weakness persists:

I've been waiting a long time to see relative strength from biotechs ($DJUSBT), a big part of healthcare. But the only group in this space worth considering right now is medical equipment ($DJUSAM).

Strong Earnings ChartList (SECL)

There are SECL stocks that are at or near key support, so I thought I'd share a few of those with you. We now have 3 alerts out and we might add another one or two, and they might come from the following:

LULU:

If LULU can close back above gap support with that long tail beneath it, it very well could have established an important low.

KEYS:

KEYS looks similar to LULU in that the stock has fallen back to test a key gap support level.

SERV:

53.50-54.50 should serve as excellent support here for SERV as it too has pulled back to a solid reward to risk entry point.

Current Alerts

As we've been hinting, we decided to get a bit more active on the trading front for a few reasons. First, we're heading into an earnings season that could be the catalyst needed to carry our major indices back to all-time highs. Second, the weekly RSI on the S&P 500 has dropped back below 50. Many times, that signals a bottom in the overall market. If the market is in a bottoming phase, we want to hop on board a couple of relative winners. ROKU was simply beaten up and overdone, in my view, while trading back down near major gap and price support. The two that we alerted yesterday, ZBH and NOC, are both leaders within strong industry groups. It made sense to become a bit more active given the market's weakness as we could keep our stops fairly tight and limit our downside, while at the same time positioning for a pre-earnings push higher. Here are the charts:

ROKU:

We're beginning to see both absolute and relative strength on ROKU, positive signs for sure. We want to see that continue. (Disclosure: I own shares in ROKU)

ZBH:

ZBH has been a leader in the medical equipment ($DJUSAM) area and its recent drop was close to gap support at the time we alerted it yesterday at 131.80. Our target is a return to previous highs near 142.50. (Disclosure: I own shares in ZBH)

NOC:

NOC has been a relative leader in the very strong defense industry ($DJUSDN) and the selling over the past 5-6 trading days is setting up an opportunity in my view. Our initial entry was 363.30, although we have a second entry at 355.00 should NOC get there. Consider a closing stop beneath 350.00. (Disclosure: I own shares in NOC)

Today's Movers

As I mentioned earlier, the TRAN is at key support. Here are three stocks in transports that could benefit from a short-term bounce there:

AIR:

AIR could see a big reversal off gap support near 39.00.

KSU:

KSU is testing its 50 day SMA and price support simultaneously. A bounce from here would not be a surprise at all.

JBHT:

Trucking ($DJUSTK) has been under pressure the past few weeks, but with its PPO now back near centerline support, I'm expecting a bounce in the group. Today's doji (thus far) on JBHT looks rather appetizing for a bounce off of 50 day SMA and gap support.

Earnings Reports

Here are key earnings reports for this week:

Thursday, October 3:

PEP, COST, STZ

Friday, October 4:

None

Economic Reports

Initial jobless claims: 219,000 (actual) vs 216,000 (estimate)

September PMI services index: 50.9 (actual) vs 50.9 (estimate)

September ISM non-manufacturing index: 52.6 (actual) vs 55.5 (estimate)

August factory orders: -0.1% (actual) vs -0.6% (estimate)

Happy trading!

Tom

• September ADP employment report showed 135,000 jobs added, below the expected 152,000 level
• Money is rotating into safety as treasuries perform well (with TNX falling 5 basis points to 1.59%)
• All 11 sectors down today with major indices shedding 1-2%; Dow Jones down 500 points just before noon
• Airlines ($DJUSAR, -4.78%) hit hard despite falling crude oil prices ($WTIC, -2.35%)
• ROKU, our sole alert, trades higher to 104

Market Outlook

On days like yesterday and today, I have to remind myself to look at the big picture and try to avoid the short-term "noise". On Trading Places LIVE this morning, a webinar hosted here at EarningsBeats.com on Monday and Wednesday mornings from 9:00-9:30am EST, I focused on the truly BIG PICTURE, a 100 year monthly chart of the S&P 500 and I laid out my arguments for a secular bull market, one that might continue for the next decade. You will still see plenty of periods of weakness, but the overall trend will be higher. Here's the chart I reviewed with everyone:

Our stock market overshoots in both directions. We get too euphoric, which leads to secular bear markets. Then we get too pessimistic, which leads to secular bull markets. I believe the S&P 500 has a lot further to climb, but we'll absolutely have to weather short-term corrections and even cyclical bear markets along the way. Just don't lose sight of this chart, especially when we break to new all-time highs.

Sector/Industry Focus

Industrials (XLI) took the brunt of yesterday's selling, although it was felt across all 11 sectors. Nonetheless, weakness in manufacturing would be expected to hit industrials hard. The good news is that the absolute and relative charts for the XLI remain bullish:

Yesterday, the manufacturing miss resulted in a ton of selling, right? But when we step back and look at the longer-term picture, what does it really mean? I don't think a whole lot, at least not now.

Strong Earnings ChartList (SECL)

There are four stocks on the SECL that have traded .75 of their average daily volume as of 11:20 EST today - ARCC, HXL, SVM, and TNDM. The latter is somewhat intriguing for a short-term trade given the heavy selling recently and the potential for a reversing candle at price support:

TNDM has been consolidating a huge upside move for the past several months. Buying it at or near key price and gap support makes sense for those willing to take higher risks. If this is a reversing candle today, the declining 20 day EMA - a potential target - is more than 10% away.

Current Alerts

We continue to ride with just one alert for now - Roku, Inc. (ROKU). The market is volatile, but a reversal today on the S&P 500 would likely trigger another alert or two. However, let's watch the market unfold first and go from there.

ROKU:

Here's a reprint of the hourly ROKU chart that I provided yesterday. The 97-100 area remains very important short-term support and thus far it's holding:

Owning a stock that's up 2% on a big down day in our major indices feels good, but I'm still watching this short-term trading range.

Today's Movers

A recent winner in terms of an excellent quarterly earnings report, Nike, Inc. (NKE) is falling like everyone else. NKE, however, is a relative leader in footwear ($DJUSFT) which has regained its relative "footing" vs. the benchmark S&P 500. The current selling could be providing a nice opportunity here:

The closer it gets to 90, the better it looks from a reward to risk perspective. The rising 20 day EMA should hold, if the 89.50-90.00 price and gap support doesn't.

Earnings Reports

Here are key earnings reports for this week:

Wednesday, October 2:

PAYX, LEN, LW, RPM, AYI, BBBY

Thursday, October 3:

PEP, COST, STZ

Friday, October 4:

None

Economic Reports

September ADP employment report released at 8:15am EST: 135,000 (actual) vs. 152,000 (estimate)

Happy trading!

Tom

• September ISM manufacturing came in at 47.8, well below expectations
• Reignited fears of recession saw a major reversal in both bond and stock prices
• The 10 year treasury yield ($TNX) tested overhead yield resistance at 1.73%, up 6 basis points, before reversing lower 11 basis points to 1.62%
• Our major indices tumbled on the news as well, with the S&P 500 dropping 1% in the first 30 minutes after the report was released
• Industrials (XLI) are the weakest sector today, while technology (XLK) is the relative leader - an indication that this selling might not last
• Online brokers are tumbling after Charles Schwab (SCHW) announced it was eliminating trading commissions
• ROKU, our sole alert, is up nearly 2% and currently avoiding the market carnage.

Market Outlook

A very weak manufacturing report has spooked Wall Street as the selling kicked in immediately after the report hit the Street. The good news for the bulls is that the S&P 500 has simply fallen back into a key gap support zone, one that I've identified in prior DMRs:

We certainly had a head fake this morning as the S&P 500 appears to be breaking out of its recent down channel. I'd like to see that break definitively before growing more aggressive in the near-term. I still believe a breakout is coming to all-time highs, but it looks like it'll be put on hold, at least temporarily.

Sector/Industry Focus

The strong U.S. Dollar Index ($USD) closed above 99 for the first time since May 2017 and that is beginning to take its toll on gold ($GOLD). The USD and GOLD have a long-term negative, or inverse, correlation and that steady rise in the greenback resulted in the printing of a head & shoulders topping formation. Yesterday, the neckline gave way and that, barring a quick reversal, points to lower GOLD prices:

This is about as classic a head & shoulder pattern as you can have. It starts with an uptrend, because you can't have a topping pattern without an uptrend in place. The left shoulder and head highs form a negative divergence as the PPO begins to roll over. Then a downsloping neckline forms, which is more bearish as it shows prior price support giving way. The final advance - the right shoulder - falls short of the high achieved during the left shoulder so the entire pattern appears to be sloping downward and to the right. Then heavy volume accompanies the breakdown of neckline support. I would look for a measurement down to 1420-1425.

Strong Earnings ChartList (SECL)

I decided to do something different today. I ran a scan of the SECL to see which stocks were setting a new 52 week low today. Surprisingly, that scan had no results. So I ran a scan of the SECL to see which stocks had RSIs below 30. The following 10 stock symbols were returned:

CECO, CHGG, CSIQ, CTLT, EHTH, EXAS, RPD, TTD, VG, WIX

I didn't bother looking at the daily charts as I'm sure they're broken. Instead, I viewed a "big picture" weekly chart, looking to see if I could make a bullish case for any of the stocks on a longer-term time frame. Here they are:

CTLT:

CTLT is just testing long-term price support from the breakout above its January 2018 high. Its weekly RSI is back in the 40s and relative strength, while dropping recently, remains in an overall uptrend.

EHTH:

EHTH was such a massive outperformer from February 2018 through July 2019, it likely needed a rest. Still, we don't typically think of a "rest" as being a 40% selloff in eight weeks. Weekly RSI here of 42 plus price support between 55-70 suggests an aggressive buy could be taken right now. Be sure to strap on your seat belt first!

TTD:

I could make a long-term argument for a lot of software stocks, but TTD has been one of the best - until August and September. If TTD is to turn back higher into Q4 earnings, I'd expect it to do so from the 150-175 support zone. Like the other two, weekly RSI has dropped into the 40s (actually hitting 40 here) and that's typically a nice area to take a shot from a long-term uptrend perspective.

Current Alerts

We only have active alert, although we'll be looking to potentially a couple more. Currently, the volatility and big swings back and forth are keeping us somewhat cautious in the near-term.

ROKU:

ROKU seems to be stabilizing after a few weeks of heavy selling. The recent trading zone has been 99-107. We're into our 6th day of trading in that area as you can see below with an hourly chart:

Thankfully, the selling volume has slowed, but it's too early to tell if it's gone. The first bullish step for ROKU will be to clear 107. That might be difficult on the first attempt.

Today's Movers

For today, I just want to point out the value of relative strength and the reason I try to avoid stocks that have been laggards vs. their peers and the benchmark S&P 500 for weeks or even months. The two biggest losers on the S&P 500 today are E*Trade Financial (ETFC) and Charles Schwab (SCHW). On the NASDAQ, the third biggest loser is TD Ameritrade (AMTD). If you routinely check relative strength, there's no way you'd be trading any of these three on the long side. Let's just look at AMTD, which is currently down 22.78%:

It's been a consistent underperformer throughout 2019. If you wait to see a stock begin to show higher relative highs and higher relative lows and reverse its absolute downtrend, you avoid owning a stock like AMTD on a day like today.

Earnings Reports

Here are key earnings reports for this week:

Tuesday, October 1:

MKC, NG, SFIX

Wednesday, October 2:

PAYX, LEN, LW, RPM, AYI, BBBY

Thursday, October 3:

PEP, COST, STZ

Friday, October 4:

None

Economic Reports

September PMI manufacturing released at 9:45am EST: 51.1 (actual) vs. 51.0 (estimate)

September ISM manufacturing released at 10:00am EST: 47.8 (actual) vs. 50.0 (estimate)

August construction spending released at 10:00am EST: +0.1% (actual) vs. +0.3% (estimate)

Happy trading!

Tom

• Dollar (UUP) gains steam, gold (GLD) breaks to two-month low
• Crude oil ($WTIC) down more than 1%
• 10 year treasury yield ($TNX) up 2 basis points to 1.69% as money rotates to equities
• Major U.S. stock indices fractionally higher, though small caps lag and are flat
• Merck & Co (MRK) up 1.92%, leading Dow Jones
• Newell Brands (NWL) leads S&P 500 on upgrade from SunTrust
• Our sole alert - ROKU - higher by 2% and trying to hold key price support (chart below)
• Note:  Our Strong Earnings ChartList has been updated and it's been sent out

Market Outlook

A relative ratio that I've used in the past to help determine what type of market we're in is the banks ($DJUSBK) vs. REITs ($DJR). These two industries used to both belong to the financial sector (XLF), but real estate has now been separated. Still, I find the performance of one vs. the other can be beneficial. When the stock market believes our economy is expanding, money typically rotates away from safety, so bonds tend to sell off and send yields higher. Higher yields tend to crimp investors' appetite for dividend-paying REITs. But those same higher yields tend to strengthen net interest margins in banks, growing earnings. Over the past two decades, banks have performed best on a relative basis when the stock market is on a tear to the upside in a secular bull market. Here's a 20 year weekly chart to illustrate:

I don't believe it's a coincidence that the DJUSBK:DJR ratio soared during the best two stretches in S&P 500 performance over the last two decades. When our economy strengthens and profits expand, it's generally going to result from a healthy banking industry that's willing to lend. We're a credit-driven market and society and when credit availability is at its highest, that's when we're likely to see significant economic growth.

Currently, the DJUSBK vs. the DJR is in a downtrend as the S&P 500 has consolidated for nearly two years. If the S&P 500 turns higher and breaks out, look to this ratio as one confirming signal of significantly higher prices ahead.

Sector/Industry Focus

Computer hardware ($DJUSCR) is regaining a leadership role in the market and that's good news for overall market direction. Here's the latest on the DJUSCR in terms of absolute and relative performance:

Now that money is rotating consistently into the group, I fully expect to see Apple (AAPL), one of our Income portfolio stocks, break out heading into its earnings report. I also expect the company to blow past its revenue and EPS estimates.

Monday Setups

First, I featured Target Corp (TGT) in my Trading Places blog article this morning. You can CLICK HERE to review that article.

Here are others that I like for this week (Disclosure: Of the following stocks, I currently own NOC and TER):

DGX:

Health care providers ($DJUSHP) has been a brutal industry, but DGX has been a leader, easily outperforming its peers. I like entry at the 20 day EMA and again closer to the 50 day SMA.

GOOGL:

GOOGL has been a solid leader among internet stocks ($DJUSNS) and it loves the month of October, averaging gains of 10.3% during this month over the past 16 years.

HTH:

HTH has been a leader in property & casualty insurance ($DJUSIP) and the group overall has been fairly solid. Volume trends have been excellent, but HTH reached overbought territory and is currently pulling back to key areas of support. As it does, the reward to risk is improving.

NOC:

I'm a big fan of defense stocks ($DJUSDN) and NOC has clearly been among the leaders in the group. Volume trends are strong so I'd be a buyer on any shallow pullbacks like the one we saw on Friday to test the rising 20 day EMA.

TER:

TER was hurt on Friday as most semiconductor stocks ($DJUSSC) were due to Micron Technology's (MU) disappointing forecast. I think it's creating an opportunity for one of the industry group's true leaders.

Strong Earnings ChartList (SECL has been updated and sent out)

I reviewed our SECL for stocks that are making their ways to new highs and on increasing volume. Breakouts can be one way to play a strong market as you at least know that these stocks have no clear overhead price resistance. Here are the stocks on our ChartList making new 52 week highs this morning and having volume that's already at least 30% of normal daily volume in the first 45 minutes of trading:

Stocks breaking to 52 week highs on 30%+ normal volume at 10:15am EST - 2 of 307 stocks

NKE:

Footwear stocks ($DJUSFT) are on fire and NKE's earnings last week started it. I suspect any pullback on NKE to the lower 90s will represent an excellent entry point.

GSK:

Yes, the pharmas ($DJUSPR) are weak, but GSK has been a tremendous outperformer and today's breakout is simply the latest example. Let's see how it trades the rest of the day, but GSK now has excellent gap support near 42.50.

Current Alerts

We only have active alert, although we'll be looking to potentially add 1-2 more.

ROKU:

ROKU has been torched the past few weeks and while maybe some of it was justified, I think it's been completely overdone. I really would like to see a reversing candle print, especially since we're now in a very important short-term support zone. Failure to hold the support zone reflected would likely lead to further selling and the next level of support being tested in the upper 80s.

Today's Movers

SGEN:

SGEN is up more than 11% and while chasing is typically not a good idea, a breakout on a rapid mover like SGEN would be bullish. The biggest risk is simply the lack of strength by biotech stocks ($DJUSBT). The group has downtrended vs. the S&P 500 all year. Still, volume trends on SGEN are solid and a breakout here will likely lead to further gains.

IMMU:

IMMU is also in that biotech space, but it's been an underachiever and it's down 12% and nearing a major support level just below 12.00. I'd expect a bounce from here, but anyone trading a stock like this should have a very quick timeframe. Make your money and exit.....before the next cockroach surfaces in the kitchen!

Earnings Reports

Here are key earnings reports for this week:

Monday, September 30:

THO

Tuesday, October 1:

MKC, NG, SFIX

Wednesday, October 2:

PAYX, LEN, LW, RPM, AYI, BBBY

Thursday, October 3:

PEP, COST, STZ

Friday, October 4:

None

Economic Reports

September Chicago PMI released at 9:45am EST: 47.1 (actual) vs. 50.4 (estimate)

Happy trading!

Tom