EB Daily Market Report - Thursday, September 26, 2019
Executive Market Summary
- Remember the big 12% spike in crude oil ($WTIC) last week? It's now gone
- Rotation to defense once again encourages selling in U.S. equities
- Dow Jones down 127 points at 11:20am EST, with heavier selling on NASDAQ
- Defensive sectors leading charge with real estate (XLRE, +0.37%) topping list
- Energy (XLE, -1.79%) and communications services (XLC, -1.63%) enduring brunt of selling
- Pending home sales much stronger than expected in August; homebuilders holding near flat line
Market Outlook
Banks ($DJUSBK) are an industry group worth watching and for a couple reasons. First, it's always a good sign to see a healthy banking group on an absolute basis. Why? It's simple. We want healthy banks so that credit availability remains strong. Banks don't have to lead a bull market, but we definitely want the group to participate. The overhead battle line has been drawn for the DJUSBK and it's evident on their chart:
The PPO is very strong and during an uptrend, pullbacks generally hold the rising 20 day EMA. So a big test for the DJUSBK is upon us. Will that 20 day EMA hold? If so, the odds are greater that we'll push higher and break out. If not, then the sideways consolidation that we've experienced throughout 2019 continues. A breakout would definitely argue for an overall breakout for the S&P 500 to fresh all-time record highs.
Sector/Industry Focus
Communication services (XLC) is having a rough day today, beating only the energy sector in terms of daily performance. But I'm still pretty bullish on the space as it loves Q4, as do most of the aggressive sectors. While the following chart isn't text book, it still shows a pattern that's close to a bullish ascending triangle:
That initial April high really needed to be about .50 higher so that we'd have equal highs across the top. Still, the overall pattern seems to be one where momentum is building to the upside. A breakout above 51.75 or so would be very bullish for groups like internet ($DJUSNS) and broadcasting & entertainment ($DJUSBC).
Strong Earnings ChartList
Today's close marks the end of the historically bearish period from September 20 through September 26. While I personally wouldn't get too aggressive in the market since we haven't seen a breakout, looking for solid stocks in pullbacks is a short-term strategy that makes sense to me, given the seasonal bullishness that lies ahead. I ran a simple RSI 40-45 screen against our Strong Earnings ChartList to try to uncover solid reward to risk opportunities and there were 53. I then added SCTR > 70 and it returned 17, much more manageable:
Stocks with RSIs between 40-45 and SCTR > 70 at 10:45am EST - 17 of 329 stocks
Of the 17 stocks that were returned, several were software so I'll include one of those. Also, a consumer discretionary stock.
Rubicon Project (RUBI):
Gap support near 8.50 should provide excellent support, especially if begin to see renewed strength in the industry group. Failure to hold the top of gap support, however, could lead to a test of lower gap support closer to 7.60.
Tempur-Pedic Intl (TPX):
We've seen a ton of consolidation here, so TPX could be poised to charge higher in Q4. The current trading range is from approximately 73.00-80.00 so short-term weakness here could be used to our advantage - with a fairly tight stop in play. There's no reason for TPX to close back below 73 if it remains in an uptrend.
Current Alerts
We have no current alerts at the moment, but that is likely to change between today and tomorrow.
We will likely add a couple alerts as we continue to look for signs that the worst of the selling is behind us.
Today's Movers
I ran a scan of unusually high volume today against the entire U.S. market (not just Strong Earnings ChartList stocks) and found the following to be particularly interesting:
Palomar Holdings (PLMR):
While volume is heavy today, it's generally not heavy enough for me to trade this stock. However, there are a few interesting points worth sharing. First, note the failure to breakout with that long tail to the top? That usually is a sign that we'll see ensuing short-term weakness, which we did down to the rising 20 day EMA. But PLMR remains in a very bullish ascending triangle continuation pattern following an uptrend. I'd expect to see a breakout here.
Smart Global Holdings (SGH):
Is it a breakdown or a false breakdown? Honestly, it's too early to tell. The heavy volume suggests we're seeing either distribution or accumulation, depending a lot on where we close today. Closing support has previously been just above 26, so a reversal today and close above that support would be much more bullish. A close beneath the bottom of gap support closer to 24.00 would be problematic technically.
Earnings Reports
Here are key earnings reports for the balance of the week:
Thursday, September 26:
ACN, MU, CAG, FDS, MTN, PRGS, ATU
Friday, September 27:
None
Economic Reports
Q2 GDP (final estimate) released at 8:30am EST: 2.0% (actual) vs. 2.0% (estimate)
Initial jobless claims released at 8:30am EST: 213,000 (actual) vs. 211,000 (estimate)
August pending home sales released at 10:00am EST: +1.6% (actual) vs. +0.6% (estimate)
Happy trading!
Tom