Daily Market Report - Wednesday, September 18, 2019
Executive Market Summary
- Our major indices remain somewhat nervous ahead of the Fed announcement at 2pm EST today
- The aggressive small caps are significantly weaker than their larger cap counterparts
- Gold ($GOLD) is up slightly, while crude oil takes another 1.80% hit
- Volatility ($VIX) is up more than 5%, indicative of increased tensions today
- Housing starts and building permits were very strong, well ahead of estimates
- Delivery services ($DJUSAF) tanking after FDX reports dismal results and outlook
Major Market Overview
There was both good news and bad news and, quite honestly, I don't think the overall market cared about either. The good news came this morning in the form of a very strong housing report. Both housing starts and building permits blew by consensus estimates, signaling an already strong housing market just before the group could get another major lift by another interest rate cut at 2pm EST. Home construction ($DJUSHB) remains one of the most friendly areas to trade and invest.
The bad news - the FedEx (FDX) quarterly disaster - is taking down an already challenged delivery services ($DJUSAF) group. But again, I don't believe the overall stock market is concerned right at this moment about either of these developments. Instead, all eyes are on the Fed. The current Jerome Powell-led Fed doesn't have a very good track record when it comes to aiding stock traders. I wrote about that in my morning Trading Places blog article, which you can read HERE.
The intraday reactions to the Fed are typically "knee-jerk" reactions, especially between 2pm and 3pm EST. We'll likely begin to see how the stock market truly feels in the final hour of trading, after the bond market closes. Reactions over the next few trading days will be meaningful as well. Just keep in mind that after the Fed announcement today, we have quad-witching options expiration on Friday, followed by a historically bearish week of trading ahead next week.
On the S&P 500 since 1950, the September 20-26 period has produced annualized returns of -38.88%. This does not provide any kind of guarantee that we're heading lower, it's simply a tendency. But if we struggle to get through major overhead price resistance from July as we head into this historically bearish period, it might make sense to take a few precautions. Food for thought.
Sector/Industry Focus
FedEx Corp (FDX) reported awful results. It's difficult to sugar-coat those ugly numbers. They missed both their revenue and EPS estimates...and then guided lower. It was the bears version of a trifecta. As you might expect, FDX is being crushed today, down nearly 14% at last check. It's by far the worst S&P 500 performer today. Worse yet, FDX is taking down the entire delivery services ($DJUSAF) group:
Heading into last night's report, FDX had a big chance to deliver numbers that would carry the group above April resistance. Now the group is scurrying to find support, first at its 50 day SMA and next would be trendline support.
Strong Earnings ChartList
High volume stocks, trading more than .60x normal daily volume at 11:50am EST - 11 of 329 stocks
Callaway Golf (ELY) looks very compelling to me. A confirmed breakout on an absolute basis might also be confirmed by ELY breaking out on a relative basis vs. its recreational products ($DJUSRP) peers and vs. the benchmark S&P 500:
Check out those red arrows in the price panels. It appears as if ELY is just making relative breakouts. I wouldn't buy based solely on that, but a confirmed price breakout would be very appealing with the improved relative strength. Also, failure at the current price with a pullback to test the rising 20 day EMA would be a potential entry point as well.
Current Alerts
It's September and the S&P 500 is near an all-time high. There's plenty of overhead price resistance and also plenty of historical precedence why it makes sense to keep powder dry. The Fed is ending its two day meeting today and three times since December 2018, we've seen huge market selloffs on the heels of Fed meetings and policy statements. The stock market clearly wants the Fed to turn more dovish like foreign central bankers, and we'll get the latest Fed policy statement reaction later this afternoon (announcement will be at 2pm EST), this week and into next week. The recent wholesale selling of market leaders, in my opinion, was simply the unwillingness of traders to hold onto those growth stocks with the Fed having such a horrible track record in terms of stock market reaction.
Based on all of this, we're simply looking for a stock here or there to trade with fairly tight stops in play. Right now, we have just one active alert - Career Education Corp (CECO) - entering in an area of recent support with a tight stop of a close beneath 19.00. For the third day in a row, it's trading beneath that level on an intraday basis as you can see below:
We'll exit on a close below 19.00. As far as next support, gap support just beneath 18.00 has held in the past and if we do get stopped out, I'd expect to see that level tested once again. I haven't given up on CECO, but the objective with our trading strategy is to minimize losses that we incur. Buying close to key short-term support and selling if that level is violated is a discipline that we do not want to stray from.
Today's Movers
Digital Realty Trust (DLR) is down roughly 1.5% at last check, but if its current bearish engulfing candle holds into the close, it could signal further short-term weakness as a negative divergence is present:
As a short-term trader, if I owned DLR, I'd be looking to potentially exit the trade at the close if conditions didn't improve. The pink arrows above mark key PPO and 50 day SMA support to watch after a negative divergence prints. A strong finish would negate this discussion, but my experience says that warnings of short-term slowing momentum should be heeded.
Many times, however, weakness provides an opportunity. Let's take Toll Brothers (TOL), for example. We recently saw a breakout here and today's selling is bringing the stock back down to test its first key level of support - price:
While we never know for sure whether a key support level will hold, those support areas provide us the basis for calculating our reward to risk on a trade. Ignoring the fact that TOL is not on our Strong Earnings ChartList, I'd consider entering TOL at both price support and its rising 20 day EMA, utilizing a closing stop beneath that 20 day EMA. I believe TOL is heading for 43-44 based off its recent 4-5 point trading range prior to breakout.
Earnings Reports
FedEx Corp (FDX) reported its quarterly results last night and they weren't good. FDX missed on its quarterly estimates and lowered guidance. Honestly, Wall Street wasn't expecting much from FDX as its relative strength had been very weak heading into the report. I had written an article in my Trading Places blog at StockCharts.com on Monday titled, "Is Now The Time For FedEx?". While some short-term absolute and relative strength had surfaced, the longer-term picture was questionable at best. If you're planning to hold a stock into its earnings report, it's probably a very good idea to check its relative strength before doing so.
This is a very light week for earnings, but there are still a few more to watch:
Wednesday, September 18:
GIS, MLHR
Thursday, September 19:
DRI, SCS, SCHL
Friday, September 20:
None
Economic Reports
August housing starts released at 8:30am EST: 1,364,000 (actual) vs. 1,251,000 (estimate)
August building permits released at 8:30am EST: 1,419,000 (actual) vs. 1,300,000 (estimate)
FOMC announcement to be released at 2:00pm EST
Happy trading!
Tom