EB Daily Market Report - October 11, 2019

Executive Market Summary

• President Trump's latest tweets suggest "good things" are happening regarding China trade talks
• Dow Jones is up nearly 500 points and just 1.5% away from its all-time record high close
• We're seeing leadership from materials (XLB), industrials (XLI), financials (XLF), and technology (XLK)
• 10 year treasury yield ($TNX) up 9 basis points to 1.75%, allowing major rotation to equities
• Industrial suppliers ($DJUSDS) are soaring with FAST's (+17%) quarterly earnings results that surpassed estimates
• Gold and gold miners are easily the big losers on the session
• 3 Active Trade Alerts are up handsomely, led by ZUMZ (+3.74%); NOC down with defense stocks ($DJUSDN)

Market Outlook

It will be very important to see the recent relative strength in transportation stocks ($TRAN) continue. We now have a relative double bottom in play. A breakout above the relative high that printed between those relative lows would be extremely bullish and likely fuel a major stock market rally:

I have studied a ton of stock market history and there aren't many signs more bullish than relative strength from transports. The lack of relative strength in this area generally leads to the type of sideways consolidation that we've experienced in 2018/2019. An uptrend, however, is almost always associated with a significant stock market advance.

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Sector/Industry Focus

Apparel retail ($DJUSRA) has been showing better relative strength of late, perhaps in response to the current trade meeting between the U.S. and China - and the heightened expectations of a deal, or partial deal. Here's a technical view from an absolute and relative perspective:

The DJUSRA is now trading at a 5 month relative high to the benchmark S&P 500. It's giving us the green light to trade apparel retail stocks, especially the leaders, which is why ZUMZ is an Active Trade Alert of ours.

Strong Earnings ChartList (SECL)

Like to trade breakouts? I ran a scan of the 307 stocks currently on our SECL for 52 week highs and it returned the following 22 stocks: AAPL, ANSS, CDW, CINF, COUP, CTAS, DG, EQR, ICE, PHM, QTS, REXR, RH, ROST, SNX, SUI, TER, TGT, TMHC, TSEM, WHR, WMT. If I then require that these stocks are on a pace to trade more than their normal daily volume, the list shrinks to just 6: AAPL, COUP, EW, QTS, TSEM, WMT. AAPL, EW and WMT are portfolio stocks that I review every weekend in the EB Portfolio Report, so let's look at the other 3:

COUP:

COUP has become one of the strongest companies in the software space ($DJUSSW). Future pullbacks to the rising 20 day EMA will likely present excellent buying opportunities.

QTS:

Despite office & industrial REITs falling on a relative basis, QTS continues its rapid ascent. It's been a top real estate performer and shows few signs of letting up.

TSEM:

TSEM is potentially breaking out of a bullish ascending triangle, which would measure to approximately 23.50-24.00. A failure to break out today, however, could lead to another test of its rising 20 day EMA. Either way, I do expect to see higher prices here.

Active Trade Alerts

Here are our current active trade alerts:

NOC (-1.87%) - defense stocks ($DJUSDN) had a strong start this morning, but have reversed and are down for the session, contributing to NOC's relative underperformance. Technically, NOC is fine, but it'll need some money rotating into its peer group to keep its overall uptrend humming along. Keep in mind we have a second entry on NOC if it were to hit 355.00.

ZBH (+1.91%) - solid action, outpacing its medical equipment industry ($DJUSAM).

TWTR (+2.23%) - finally seeing some positive action in TWTR. Its initial test will be its declining 20 day EMA, currently at 41.00.

ZUMZ (+3.74%) - apparel retail ($DJUSRA) is analyzed above in the Sector/Industry Focus section and is showing renewed strength, perhaps on the positive trade developments. ZUMZ is benefiting from strength in the group and its own relative strength. There's overhead price resistance at 31.80 and then 33.04.

All 4 active trade alerts remain solid technically.

Today's Movers

I ran a scan of U.S. companies that have hit 52 week highs today on at least 30% of normal volume as of 10:30am EST. There were too many results to list (35), but I looked at all the stocks on the scan results and wanted to share the following 4:

DE:

After months of consolidation, DE looks poised to rally much further. This is a stock that would benefit from a trade deal with China. It's beginning to price that in.

FAST:

Despite being part of the challenging industrial suppliers group ($DJUSDS), FAST had performed relatively well heading into its earnings report this morning. It's seeing a very positive reaction from Wall Street thus far after easily surpassing EPS estimates.

JCOM:

The most impressive thing about JCOM is that it's broken out with its internet peers ($DJUSNS) lagging the S&P 500. A future pullback to test its breakout level near 92 would be a solid entry. I'd keep this one on a watch list.

Interested in a small cap with perhaps more potential, but more risk?

FRTA:

The volume is a bit of a concern as are the back and forth swings (probably due in part to the lower volume), but FRTA is a leader in the building materials & fixtures group ($DJUSBD), which has been a very strong group in 2019. I'd expect higher prices here, but you might have to ride out a lot more volatility than usual.

Earnings Reports

Here are the key earnings reports for Friday and Monday:

Friday, October 11:

C, INFY, FAST

Monday, October 14:

None

Economic Reports

October consumer sentiment: 96.0 (actual) vs. 92.0 (estimate)

Happy trading!

Tom