EB Daily Market Report - Tuesday, October 15, 2019
Executive Market Summary
- U.S. stocks are charging higher with the Dow Jones clearing 27000 and the S&P 500 approaching 3000
- Healthcare (XLV) and financials (XLF) leading as UNH and JPM, respectively, reported excellent quarterly earnings results
- The other defensive sectors are all lagging badly; technology (XLK) is being led higher by semiconductors ($DJUSSC)
- Gold (GLD) is lower despite a falling U.S. Dollar (UUP)
- 10 year treasury yield ($TNX) is flat as there was no economic news of substance out today
- Our Active Trade Alerts are mixed with ZBH and ZUMZ both solidly higher, while TWTR and NOC lag the broader market
Market Outlook
One area that I've stressed watching is transportation stocks ($TRAN). Over the past week, the TRAN is up roughly 6% after today's solid advance. The daily chart shows a lot of back and forth action and not much progress in 2019, but the hourly chart shows perhaps the beginning of an uptrend that bears watching:
Sellers have shown up in the recent past near 10500, so that will be one level to watch closely. From a fundamental perspective, JB Hunt Transport Services (JBHT), a trucker ($DJUSTK) reports after the closing bell today and Kansas City Southern (KSU), a railroad ($DJUSRR), reports on Friday morning before the bell. These two earnings reports could be catalysts for the transportation group. History tells us that when transports are on the move, so too is the benchmark S&P 500. Stay tuned.
Sector/Industry Focus
Semiconductors ($DJUSSC) are rolling higher again today and they're getting closer and closer to a potentially huge breakout:
An advancing semiconductor group is always bullish for stocks, and it's worth noting that ASML Holdings (ASML), a leading semiconductor company, reports its latest quarterly results tomorrow. I feature a few semiconductor names under Today's Movers below.
Strong Earnings ChartList (SECL)
First, I wanted to point out that we'll be updating our SECL sometime over the next day or two. There aren't many companies to add to the list, but we need to remove a number of companies that will be reporting their latest quarterly results over the next few weeks. So expect to see a much smaller list until we get deeper into earnings season. Then we'll be adding the latest strong performers.
Today, given the market's overall strength, I want to focus on SECL stocks that are setting new 52 week highs. There are 15 of them as follows: AMAT, ANSS, ARNC, BMCH, HCP, KLAC, LULU, NTRA, PHM, REXR, RH, TER, TMHC, TSEM, ZTS. Here are names from this list that look particularly interesting to me:
BMCH:
BMCH is a strong home improvement stock ($DJUSHI) and that's a space I really like. So I do expect higher prices on BMCH. However, short-term I want to see if we can make this breakout today. BMCH was upgraded this morning and gapped higher, but didn't clear overhead price resistance on the open. That can be a short-term bearish development, especially if we see a breakout intraday that fails. Let's watch to see where BMCH closes.
HCP:
HCP has been a tremendous relative performer within a strong real estate sector, but note the periodic negative divergences (higher price with lower PPO) that appear. They generally result in a period of selling and/or consolidation so I'd be careful with HCP in the short-term. Also, if the S&P 500 can forge to a new all-time high, I expect defensive sectors like real estate (XLRE) to lag like they're doing today.
ZTS:
What a great performer in a beaten-down industry! But....there are warning signs all over the place here. First, ZTS is in the pharmas ($DJUSPR), which have been awful in 2019. Second, check out the increase in volume when the selling in early September began. Now we've moved back up to test that same price resistance. Finally, pharmas are moving to a 2-3 month high and ZTS, a leader, hasn't broken out. Perhaps it will happen soon, but given the other issues I see here, I'd take profits if I owned it. Tops can form like this, so I'd want to SEE the breakout, not hope that it occurs. I wouldn't assume it just happens here.
Active Trade Alerts
Here are our current active trade alerts:
NOC (-0.41%) - defense stocks ($DJUSDN) are up fractionally today, but NOC is simply not performing with the market for now. I still really like the stock, but it's consolidating so we'll need to exercise some patience.
ZBH (+2.64%) - very nice session for ZBH, which is outperforming and more than doubling its medical equipment peers ($DJUSAM). Danaher (DHR), another key medical equipment stock, reports its quarterly results on Thursday. ZBH could see a reaction in sympathy.
TWTR (+0.13%) - TWTR is simply testing my patience. Volume remains light and, while it's lagging the overall market, it is in better shape than it was earlier today when it was down more than 1%.
ZUMZ (+2.00%) - continues to trade along, and in today's case just above, its 20 day EMA. I'm expecting a near-term test of its recent high near 33, but it first must negotiate the 32 level, where it's failed twice already in October.
All 4 active trade alerts remain solid technically.
Today's Movers
Semiconductors ($DJUSSC) are having another solid day and the group isn't far from a technical breakout for 2019. If the breakout is made, I want to highlight a few of the leaders:
AMAT:
AMAT has been a great relative performer and I could make the case that this represents a breakout of a bullish ascending triangle continuation pattern, but we'd need to see much more volume to confirm that type of pattern. Nonetheless, AMAT looks to go higher in my opinion.
NVDA:
A close above 193 would be NVDA's highest close of 2019 and volume does appear to be increasing. Today's close will be important, because it could just as easily be a false breakout and a top. For most semiconductors, I'm going to give the benefit of the doubt to the bulls, but with NVDA, we have to realize that its relative strength hasn't been nearly what we've seen on the others. It's improving, but yet to make key breakouts. Therefore, a bit more caution should be exercised here.
MCHP:
I wouldn't say that MCHP has been a leader in the DJUSSC, but it's relative strength has been ok. Its relative strength has actually improved considerably over the past 5-6 weeks and it is printing a very bullish ascending triangle continuation pattern. The A-B-C-D-E pattern is missing only the "E", which is the breakout. If it breaks out with heavier than normal volume, the measurement here would be between 120 and 125, quite a move from its current price.
Earnings Reports
Here are the key earnings reports for this week, featuring stocks with market caps of more than $10 billion. The number of companies reporting will increase significantly over the next 3-4 weeks so please make sure you check for earnings dates for any companies you own or are considering owning:
Monday, October 14:
None
Tuesday, October 15:
JPM, JNJ, WFC, UNH, C, NFLX, GS, BLK, PLD, AMX, UAL, WIT, OMC, FRC, JBHT
Wednesday, October 16:
BAC, ABT, IBM, ASML, USB, PNC, CCI, CSX, KMI, PGR, BK, ALLY
Thursday, October 17:
PM, HON, UNP, DHR, MS, ISRG, BBT, STI, PPG, ERIC, MTB, KEY, TEAM, GPC, DOV, NVR, TXT
Friday, October 18:
KO, HDB, AXP, SLB, SYF, STT, CFG, KSU
Economic Reports
None
Happy trading!
Tom