EB Daily Market Report - Tuesday, September 24, 2019
Executive Market Summary
- Slight gains abroad sparked green futures here in the U.S.
- Major indices off their earlier highs as money rotates defensively
- Commodities mostly lower, including crude oil ($WTIC), down more than 1%
- Bonds are higher, with the 10 year treasury yield ($TNX) falling 4 basis points to 1.67%
- Defensive sectors leading - utilities (XLU) +1.11%, consumer staples (XLP) +0.73%
- Carmax, Inc. (KMX), a Model portfolio stock, blows past estimates, but stock reverses after gap higher
Market Outlook
It's not that I'm uninterested in this week's action. I just don't believe we'll have the strength just after quad witching to make a breakout to an all-time high - not yet anyway. The fact that money is rotating defensively today and has been for the last 3 days confirms this belief. We're just not ready. When we do move higher, there should be no doubt as to the market's intentions. In other words, money needs to rotate aggressively when the breakout occurs. That will be one big clue that it's for real. Here's a refresher on the S&P 500's intraday chart and what we might expect this week:
At our morning high, the S&P 500 broke its very short-term downtrend line that began at Thursday's high. If we reconnect the Thursday high with this morning's high, we have what could turn out to be a down channel for the balance of the week as we move toward gap support. A break below 2980 really increases the odds of another gap support test like the one we saw on September 10th.
I'm much more comfortable predicting the long-term outlook than I am the minute-by-minute or hour-to-hour outlook. The short-term is so influenced by factors outside our control and grasp, most notably the market makers.
Sector/Industry Focus
Mobile telecommunications ($DJUSWC) is leading the communication services sector (XLC) today and is trying to make a breakout:
We've seen intraday moves above 400 on this index, but we've yet to see a close there. Therefore, today's finish will be important. I highlighted the volume because it's not been confirming this advance. So a failure could be troublesome for the group in the short-term.
Longer-term, it's hard not to like the action in mobile telecom:
Over the past 5 years, when we've seen breakouts from absolute downtrends/consolidation, relative strength goes on a tear. That's why the group deserves a second look on this move.
Strong Earnings ChartList
I personally wouldn't get aggressive in the market since we haven't seen a clear breakout just yet. But it's important to keep in mind that Q4 tends to be extremely bullish for U.S. equities. A breakout should be respected, in my view. I ran a high volume scan of our Strong Earnings ChartList to see what's moving on volume and here are the results:
Stocks with volume exceeding 50% of normal daily volume at 10:52am EST - 12 of 329 stocks
Here are a few comments on the results:
(1) The home construction stocks look quite strong so increasing volume on those stocks adds to the bullishness
(2) There are a number of technology stocks, so let's discuss a couple:
ROKU:
I wrote about ROKU over the weekend in the EB Portfolio Report and indicated that once the top of gap support gave way at 118, there was an increased likelihood of a test of the bottom gap support, which is at 100.97. We've now done that. A reversal from this level is what would be expected from a bullish perspective. Anything other than that would be much more damaging technically.
SNAP:
I'd be hard-pressed to find a better looking internet stock ($DJUSNS) right now. However, if SNAP fails to hold its breakout today, I wouldn't be at all surprised to see a handle form back to the rising 20 day EMA. At that point, it would be a strong buy, in my opinion.
(3) My final comment here is on the lone materials stock listed - SVM:
I see a stock being accumulated on heavy volume and currently residing in a bullish inverse head & shoulders continuation pattern. A breakout would be a solid trade, albeit a risky one on such a small stock. The initial measurement on a breakout would be to the 5.25-5.35 level.
Current Alerts
We have no current alerts at the moment. One reason is that our major indices are very close to overhead price resistance so adding alerts at this point could prove costly if the overall market environment turns bearish near-term, which is generally the case during the next several days.
We will likely add 2-3 alerts later this week if we see controlled selling back to key support.
Today's Movers
This isn't so much a mover as it is a potential mover. Microsoft (MSFT) looks poised to break out of a bullish ascending triangle pattern. A lot is being written and said about lack of leadership among the FAANG stocks, but there's no "M" in FAANG. How can we overlook what's developing in Mr. Softie?
Obviously, a lot depends on software stocks ($DJUSSW) overall, but MSFT is maintaining its leadership in the group, having just broken out to a new relative high last week.
Earnings Reports
Here are key earnings reports for this week:
Tuesday, September 24:
Portfolio stocks: KMX (Model portfolio - before market open), CTAS (Model portfolio - after market close)
Others: NKE, AZO, INFO, SNX, JBL, BB
KMX reported excellent results this morning, topping both revenue and EPS estimates. The reaction was quite positive at the open, but it has sold off since then and it failed to clear overhead resistance on the news. That's generally a short-term negative. KMX currently resides in a trading range between 78.50-91.34. The biggest problem isn't KMX, it's the specialty retailers ($DJUSRS) as you can see below:
One piece of good news is that the DJUSRS is testing relative support from December 2018. Should that hold and the group begin to bounce, KMX should benefit as it just broke out relative to its specialty retailer peers. Also, if KMX could rally back to or near its high today by the close, that would be a solid sign of accumulation.
CTAS reports after the close today. Based on its relative strength, I'm looking for a solid report from CTAS:
The turn higher in both absolute (back above 20 day EMA) and relative strength has been accompanied by stronger than normal volume. So it appears the stock is being accumulated into earnings. Obviously, we'll know more after today's closing bell.
Wednesday, September 25:
KBH, FUL, DAVA, WOR, AIR
Thursday, September 26:
ACN, MU, CAG, FDS, MTN, PRGS, ATU
Friday, September 27:
None
Economic Reports
July Case-Shiller HPI: +0.0% vs +0.1%
July FHFA house price index: +0.4% vs +0.2%
September consumer confidence: 125.1 vs 133.0
Happy trading!
Tom