EB Daily Market Report - September 25, 2019

Executive Market Summary

• U.S. stocks recovering a bit of recent losses; value stocks still preferred over growth stocks
• Banks, financials leading on a relative basis
• Short-term downtrend remains in play, although we're nearing historical bullish period
• U.S. announces an initial trade agreement has been reached with Japan
• 10 year treasury yield ($TNX) jumps 7 basis points back to 1.71%; strong new home sales report
• Dollar surges; commodities under pressure; gold ($GOLD) down 1.8% to $1512 per ounce
• Crude oil ($WTIC) down 2% to $56 per barrel
• Cintas Corp (CTAS), a Model portfolio stock, beats estimates and is up 5%
• Nike (NKE) blows past estimates and trades at all-time high, sparking footwear ($DJUSFT)

Market Outlook

The S&P 500 channel that I discussed yesterday remains in play for now:

The intraday lows yesterday and this morning literally bounced right off that lower channel support line. I believe that 2940-2960 support zone is going to hold, meaning that a pre-earnings run to the upside is about to unfold.

In the event you're not aware of the historical tendency, there's generally a strong move into earnings season that starts the 28th of the calendar month (December, March, June, and September) prior to earnings season. Over the past 69 years, the S&P 500 has risen from September 28th through October 18th 46 times. So an advance occurs roughly 2 out of every 3 years - not a guarantee, but a solid probability.

Sector/Industry Focus

Truckers ($DJUSTK) are an improving industry group. They've seen profit taking the past two weeks as the DJUSTK has fallen roughly 5% over that span. But we're getting a possible reversal today in a key support zone, so it's worth considering:

This weakness in trucking has also contributed to the weakness in transports ($TRAN) overall. If we want a truly robust bull market in Q4, we're going to need to see the TRAN break out above the 10800-10850 level:

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 75% of normal daily volume at 11:45am EST - 16 of 329 stocks

You can see that software stocks ($DJUSSW) continue to remain under intense pressure, hurting our Model portfolio stock AYX. But there was one stock on this list that is tradable at key support and that's eBay, Inc. (EBAY):

38.50 was solid price resistance earlier in 2019. Once that level was cleared, it's served as excellent price support. A close beneath 38.50 would be a warning sign. Otherwise, I'd be looking for a return trip to challenge overhead price resistance near 41.50.

Current Alerts

We have no current alerts at the moment. I'm continuing to watch the short-term negative action in the market, realizing the bearish tendencies this week from a historical perspective. Buying healthy stocks during pullbacks can be a very profitable strategy and one that we're eyeing closely right now.

We will likely add 2-3 alerts over the next couple days, looking for signs that the worst of the selling is behind us.

Today's Movers

Essent Group (ESNT) has been a solid performer in the mortgage finance ($DJUSMF) industry. After breaking out last Friday on very heavy volume, we've seen profit taking kick in and the pullback is now testing the rising 20 day EMA. Today's intraday low nearly tested the 50 day SMA. The technical picture remains bullish in my view:

I see a strong up channel on a stock that's been showing relative strength. Volume trends are solid as well. This week's weakness seems like an opportunity to me.

Medicines Co (MDCO) is flying today, breaking out of a bullish bull flag formation on heavy volume. MDCO has already had a huge September, but it doesn't appear to be done just yet:

There's a lot of accumulation taking place here, evidenced by the massive volume surge over the past month.

Earnings Reports

Last night, Cintas Corp (CTAS) reported its quarterly results and beat Wall Street consensus estimates. We're getting a very positive reaction, which is great, but there's overhead price resistance to be negotiated:

Here are key earnings reports for the balance of the week:

Wednesday, September 25:

KBH, FUL, DAVA, WOR, AIR

Thursday, September 26:

ACN, MU, CAG, FDS, MTN, PRGS, ATU

Friday, September 27:

None

Economic Reports

August new home sales released at 10:00am EST: 713,000 (actual) vs. 662,000 (estimate)

Happy trading!

Tom