EB Daily Market Report - Thursday, October 3, 2019
Executive Market Summary
- Another disappointing ISM report, this time non-manufacturing, triggered selling at 10am EST
- Our major indices have recovered most of those early losses with the NASDAQ now positive
- Two defensive groups - consumer staples (XLP) and real estate (XLRE) - are leading
- Technology (XLK) also strong with both semiconductors ($DJUSSC) and software ($DJUSSW) showing strength
- 10 year treasury yield ($TNX) down another 6 basis points to 1.54%
- Factory orders for August were not as weak as expected
- 3 alerts now out with ROKU (+3%) higher, while ZBH and NOC are relatively flat on the session
Market Outlook
It's been a rough few days for transportation stocks ($TRAN), which have fallen back from testing overhead price resistance near 10800. But now the group is faced with a key price support test. Will it hold? I say yes:
This is a good time to consider solid-looking charts in the transportation area. If transports break down, you can keep tight stops in play. Check out the "Today's Movers" section below for possible candidates.
Sector/Industry Focus
Healthcare (XLV) is the one sector that is on the verge of losing key price support from the August lows. We need to watch this carefully and avoid the group so long as its relative weakness persists:
I've been waiting a long time to see relative strength from biotechs ($DJUSBT), a big part of healthcare. But the only group in this space worth considering right now is medical equipment ($DJUSAM).
Strong Earnings ChartList (SECL)
There are SECL stocks that are at or near key support, so I thought I'd share a few of those with you. We now have 3 alerts out and we might add another one or two, and they might come from the following:
LULU:
If LULU can close back above gap support with that long tail beneath it, it very well could have established an important low.
KEYS:
KEYS looks similar to LULU in that the stock has fallen back to test a key gap support level.
SERV:
53.50-54.50 should serve as excellent support here for SERV as it too has pulled back to a solid reward to risk entry point.
Current Alerts
As we've been hinting, we decided to get a bit more active on the trading front for a few reasons. First, we're heading into an earnings season that could be the catalyst needed to carry our major indices back to all-time highs. Second, the weekly RSI on the S&P 500 has dropped back below 50. Many times, that signals a bottom in the overall market. If the market is in a bottoming phase, we want to hop on board a couple of relative winners. ROKU was simply beaten up and overdone, in my view, while trading back down near major gap and price support. The two that we alerted yesterday, ZBH and NOC, are both leaders within strong industry groups. It made sense to become a bit more active given the market's weakness as we could keep our stops fairly tight and limit our downside, while at the same time positioning for a pre-earnings push higher. Here are the charts:
ROKU:
We're beginning to see both absolute and relative strength on ROKU, positive signs for sure. We want to see that continue. (Disclosure: I own shares in ROKU)
ZBH:
ZBH has been a leader in the medical equipment ($DJUSAM) area and its recent drop was close to gap support at the time we alerted it yesterday at 131.80. Our target is a return to previous highs near 142.50. (Disclosure: I own shares in ZBH)
NOC:
NOC has been a relative leader in the very strong defense industry ($DJUSDN) and the selling over the past 5-6 trading days is setting up an opportunity in my view. Our initial entry was 363.30, although we have a second entry at 355.00 should NOC get there. Consider a closing stop beneath 350.00. (Disclosure: I own shares in NOC)
Today's Movers
As I mentioned earlier, the TRAN is at key support. Here are three stocks in transports that could benefit from a short-term bounce there:
AIR:
AIR could see a big reversal off gap support near 39.00.
KSU:
KSU is testing its 50 day SMA and price support simultaneously. A bounce from here would not be a surprise at all.
JBHT:
Trucking ($DJUSTK) has been under pressure the past few weeks, but with its PPO now back near centerline support, I'm expecting a bounce in the group. Today's doji (thus far) on JBHT looks rather appetizing for a bounce off of 50 day SMA and gap support.
Earnings Reports
Here are key earnings reports for this week:
Thursday, October 3:
PEP, COST, STZ
Friday, October 4:
None
Economic Reports
Initial jobless claims: 219,000 (actual) vs 216,000 (estimate)
September PMI services index: 50.9 (actual) vs 50.9 (estimate)
September ISM non-manufacturing index: 52.6 (actual) vs 55.5 (estimate)
August factory orders: -0.1% (actual) vs -0.6% (estimate)
Happy trading!
Tom