January 2021

Reminder: Saturday Event

Here's a quick reminder of our event this weekend:

Date: Saturday, January 30, 2021

Event: "A Day in the Life of EarningsBeats.com"

Time: 11:00am ET

We will send out a room link to all of our members tomorrow morning and I'm sure there'll also be a link on our website as well. The event will be recorded for those unable to attend live. We hope to see you there!

Executive Market Summary

• Futures were down this morning, continuing the weakness from earlier this week
• Our major indices are down close to 2.5% at last check, although small caps ($SML) are performing better on a relative basis
• Novavax (NVAX, +59.60%) is soaring after providing positive vaccine news
• Economic reports were mixed as the 10-year treasury yield ($TNX) pushes higher 2 basis points to 1.07%
• Speculation abounds that short squeezes are forcing hedge funds and institutional investors to sell high quality names to cover their short bets
• Energy (XLE, -3.45%) is again the worst performing sector, while technology (XLK, -2.56%) is next
• Defensive sectors are down, but clearly solid relative performers - typical on a very bearish day
• Volatility ($VIX, +19.33%) is exploding higher as the level of selling increases
• Earnings are mostly being reported well above expectations, but the "sell on news" struggle is real

Market Outlook

The selling this week definitely follows a familiar pattern of January selling in the 2nd half of the month. Given the big surge in volatility ($VIX), I'm most interested to see how we finish the day, not how we started it. A reversing VIX candle can many times mark a key secular bull market bottom and VIX readings from the mid-30s to mid-40s typically coincide with such bottoms as well. Check out this chart:

I believe we're going to see a significant rally off this low - once the bottom forms. The biggest question is whether today's low marks the bottom. If the VIX is at a high at the end of the day and the market finishes on a low, then Monday could be rough. If, however, we see a recovery this afternoon into the close, then I'd expect today's low to be it. Don't lose sight of the Big Picture. The rising 20 week EMA is at 3605, so another 3% or so and we're essentially there. It's certainly a possibility. But if you believe the stock market moves higher after this selling ends, which I do, then I'd be a buyer of this selling episode.

Sector/Industry Focus

I think internet stocks ($DJUSNS) are presenting an opportunity on this selling. After finally breaking out above key price resistance, the group is testing both gap support and its 50 day SMA. A strong finish could print a reversing candle on its 20 day EMA. Here's the chart:

Let's assume that we weaken into today's close. Where might the DJUSNS fall to? Well, I'd look to the most recent lows near 2630. I don't believe it'll happen, but when the market moves into short-term panic mode, losses can mount quickly. The market has a long history of selling off much faster than it moves higher. The bottom line is that if I'm of a long-term mindset, I'm yawning today. If I'm trader, I'm more on pins and needles.

ChartLists/Strategies

I'd like to see an actual reversal before growing too aggressive on trades. But if I look just to internet stocks across our primary ChartLists - SECL, SFECL, and RGCL - there were 12 stocks returned. Of these, 9 have SCTRs above 90 and SPR, a very strong recent performer, doesn't have a SCTR score assigned. Here is the list of 12:

BIDU is getting its first rising 20 day EMA test:

UPWK, a stock that I own, is also near its rising 20 day EMA:

These both have considerable risk, so be sure to keep stops in play, whether they be closing 20 day EMA stops or some other level that you deem appropriate. I like both stocks longer-term, but again, with a VIX rising, sometimes the market pays little attention to technical support levels.

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.

Friday, January 29:

LLY, CVX, SAP, HON, CHTR, CAT, CL, ROP, ERIC, LHX, JCI, PSX, LYB, WY, CHD, SYF, BAH, GNTX, DSKE

Monday, February 1:

TMO, VRTX, ITUB, NXPI, OTIS, ARE, WMG, ON, WWD, CACC, KRC, CRUS, OMCL, KMT, PCH, FN, CBT, RMBS, SKY, HLIT, AKTS

Economic Reports

December personal income: +0.6% (actual) vs. +0.1% (estimate)

December personal spending: -0.2% (actual) vs. -0.5% (estimate)

January Chicago PMI: 63.8 (actual) vs. 58.5 (estimate)

January consumer sentiment: 79.0 (actual) vs. 79.2 (estimate)

December pending home sales: -0.3% (actual) vs. -0.3% (estimate)

Happy trading!

Tom