EB Daily Market Report - Friday, October 4, 2019
Executive Market Summary
- September jobs report showed new jobs just below consensus estimates
- Unemployment rate dropped to 3.5%, lowest in 50 years
- Average hourly earnings flat, well below +0.3% expected; little wage inflation
- Market opened higher and trying to build on it to close out a tumultuous week
- Technology (XLK) leads 10 of 11 sectors higher; energy (XLE) is the laggard once again
- Apple (AAPL) advises suppliers to increase production by 10%
- Costco (COST) reports better-than-expected earnings, moving higher
- Alerts: ROKU gives back some recent gains, ZBH flat, NOC higher
Market Outlook
There are no key economic reports out the balance of today nor on Monday. There are also no key earnings reports out either day. So all eyes will be fixed on technical action. Short-term price support typically turns resistance. Remember the gap support from 2940-2960 on the S&P 500 that I kept discussing as key short-term support? Well, we broke below that so now it serves as initial short-term price resistance on the way back up. Here's the visual:
There are lots of tops (red arrows) at 2940. There's also the gap resistance that resulted from the big move lower earlier this week. I'd like to believe that this week's low is the final low before a pre-earnings run higher that takes us to all-time highs. But please understand that I'm bullish long-term so I am almost always going to look at charts with a pre-determined bullish bias. If you disagree with me, that's fine. A break of the short-term trendline (blue-dotted line) would be the more bearish outcome of the current pattern. If that were to occur, I'd expect at least a test of 2825 and, if that fails, 2725-2730. At that point, we'd be approaching a major long-term bull market uptrend channel support where I'd grow extremely bullish.
Sector/Industry Focus
Communication services (XLC) had been underperforming the S&P 500 in September, but after hitting price support, I believe you'll begin to see leadership from this sector:
The red circle highlights the September relative weakness, but the blue directional line shows the bigger picture to be a relatively bullish one for communication services. Therefore, it'd be premature to bury the internet ($DJUSNS) or broadcasting & entertainment ($DJUSBC) industry groups.
Strong Earnings ChartList (SECL)
I ran a scan this morning to see which stocks on the SECL were trading with unusually high volume (already 75% of normal daily volume by noon. The scan returned 10 stocks out of 307. The stocks were RNG, AMKR, JBLU, TEAM, TTWO, OKTA, NOMD, ROKU, SHOP, and PFGC. Here are the stocks I found most interesting from this scan:
AMKR:
I really like what's going on here with AMKR, but if we get a false breakout today, it could be a short-term top, meaning that a better buying opportunity could await us back near the rising 20 day EMA or the uptrend line. A breakout, however, on today's close would be bullish given the higher volume.
SHOP:
Many technicians might be concerned about the potential topping head & shoulders pattern. But I only am concerned if it is confirmed with a neckline breakdown on big volume. Until then, I'll give the bulls the benefit of the doubt. Note that the neckline is sloping upwards, which tells us that the selling pressure wasn't great enough to clear price support at 280. Given all that, there's still likely to be sellers at the declining 20 day EMA, especially those playing this as a head & shoulders top. If we do pull back, the next move up to clear 330 and the 20 day EMA would be extremely bullish.
Current Alerts
Coming into today, we had 3 alerts - ROKU, ZBH, and NOC. ZBH and NOC are up fractionally, performing fine. ROKU, after a string of solid days is struggling today. We've also added two more alerts just moments ago - TWTR and ZUMZ. Those charts are below as well, but first ROKU:
ROKU:
I expect ROKU to rally into the close. It's quite volatile and today's weakness might be a bit unnerving, but it's been printing mostly higher highs and higher lows this week. If ROKU can hold its intraday low from Thursday, I give it a good shot at returning to new short-term highs. The upcoming 20 day EMA test, should ROKU get there, would likely be a great opportunity to book short-term profits. ROKU is in our Model Portfolio. Let me be clear that any trade alerts should be viewed separately from our longer-term positions within the portfolios. Trade alerts are designed to be short-term trades. Buy low, keep stops tight, sell high, move back to cash. (Disclosure: I own ROKU shares)
TWTR:
In the Sector/Industry Focus section earlier, I noted that communication services (XLC) was beginning to turn around and looked as though it would lead to the upside. Internet stocks were in that same place and beginning to turn higher. TWTR had been one of the leading internet stocks until September. I look for that leadership to return and the reward to risk here was too attractive to turn away.
ZUMZ:
ZUMZ has easily been one of the best apparel retailers ($DJUSRA), but I haven't been too bullish about that group. The DJUSRA, however, has begun to show a little leadership and ZUMZ has returned back to test its rising 20 day EMA. I think it's time to get involved here, with another entry if we move back to 29.50 or so.
Today's Movers
From StockCharts.com's SCTR movers, here are two stocks worth considering on recent weakness:
DIS:
Broadcasting & entertainment stocks ($DJUSBC) appear poised to rally and DIS would likely be the one leading the charge. You can keep a tight stop here too. I'd be concerned on a close beneath 127.00, certainly 125.00.
AZO:
Specialty retailers ($DJUSRS) have been tough, but AZO has been a leader among the group. AZO is literally sitting on price support, possibly establishing a double bottom.
Earnings Reports
Here are the key earnings reports for today and Monday:
Friday, October 4:
None
Monday, October 7:
None
Economic Reports
September nonfarm payrolls: 136,000 (actual) vs 145,000 (estimate)
September private payrolls: 114,000 (actual) vs 135,000 (estimate)
September unemployment rate: 3.5% (actual) vs 3.7% (estimate)
September average hourly earnings: +0.0% (actual) vs +0.3% (estimate)
Happy trading!
Tom