EB Daily Market Report - Wednesday, October 16, 2019
Executive Market Summary
- September retail sales came in well below expectations; however, many retail stocks are in rally mode
- Also, it's notable that the 10 year treasury yield ($TNX) is only down 1 basis point to 1.76% on bad news
- Crude oil ($WTIC) is higher by 1% this morning
- Materials (XLB) are leading today, while technology (XLK) is lagging
- Many cloud-related tech companies down today as a result of a so-so Analyst Day; WDAY leads the selling
- Active Trade Alerts are mixed; review strategy changes to these trades below as earnings dates approach
Market Outlook
It's very difficult for me not to be bullish when the stock market's most aggressive group - technology (XLK) - continues to lead and resides in a bullish ascending triangle pattern:
A continuation pattern like an ascending triangle requires a prior trend in place. I think it's pretty clear that the XLK was trending higher prior to this ascending triangle formation. During this period of consolidation, note that the XLK's PPO hovered around its centerline. Now it's just beginning to rise off centerline support. A breakout would measure higher by roughly 10% to 91. That would likely take the S&P 500 to 3200 or higher by year end, which is my target.
Sector/Industry Focus
Let's talk specialty retailers ($DJUSRS). The group had been underperforming the past several months, but I'm beginning to see improvement. Technically, I'd like to clear an absolute price resistance level to become more bullish, but we're definitely seeing early signs of renewed strength:
The PPO is turning positive, which signals bullish momentum, but nothing speaks "bullish" to me like a price breakout. The 1640-1660 zone has been an area of congestion on the chart above. If we can clear it to the upside, I believe specialty retailers could begin to lead the market again. That would be very good news for one of our portfolio leaders, Carmax (KMX), which broke to a fresh all-time high on Tuesday.
Strong Earnings ChartList (SECL)
I ran a scan against our SECL looking for stocks with RSIs between 40-50 (suggesting recent consolidation/selling) and with a SCTR score above 90 (indicates solid relative strength). It came back with 16 stocks - ENPH, COUP, APPS, MANH, NVCR, PI, MEDP, RMD, RUBI, HSY, APPN, NOC, TTWO, WST, TTGT, PRFT.
Many times, the daily charts don't look great when stocks see their RSI fall into the 40s, but the weekly charts can be quite bullish. Here are two examples:
TTGT:
The weekly RSI is at 54, but remember this scan was run based on daily RSI. There's a clear uptrend in play here with TTGT and the rising 20 week EMA is currently holding as support.
ENPH:
ENPH's biggest issue technically is that the renewable energy space ($DWCREE) has completely reversed over the past quarter, especially over the past 3-4 weeks. But ENPH's relative strength vs. its peers during this downturn has actually improved quite a bit. Therefore, I still hold out hope that ENPH is poised for a further rally. ENPH should not close below key price support at 21.65. That would also be below the 20 week EMA, which is beginning to rise again.
Active Trade Alerts
I've added earnings dates to make everyone aware as we will not hold our trade alerts into earnings reports. Here's a brief update:
NOC (+0.36%) - earnings date is October 24th. The earnings date is a week from tomorrow so we have to begin thinking about managing this trade. First, we are removing our second entry at 355. We don't want to commit more money toward a stock that reports earnings in a week. Second, I think it makes sense to change our closing stop from 350 to 360. We've not seen a close beneath 360 except for that very brief September swoon, so if we close beneath 360, we'll take a minor loss and remove NOC.
ZBH (-0.46%) - earnings date is November 5th. A very conservative approach would be to raise your stop to any close back beneath the rising 20 day EMA. We're not going to change anything at this point, still looking for a pre-earnings run higher back into the 140s.
TWTR (-0.61%) - earnings date is October 24th. Like NOC, earnings are quickly approaching. Therefore, we are eliminating our second entry at 38.75 and raising our closing stop to any close beneath 39.50. Key gap support is at 38, but time is not on our side for a possible gap fill. Our original entry into TWTR was 40.07, so again we're not risking a whole lot to the downside.
ZUMZ (+0.91%) - earnings date is December 5th. We have plenty of time here, so we'll stick with our original plans. We entered at 30.87 with a second entry at 29.50 (we missed it by 3 pennies when ZUMZ hit 29.53 on October 8th). Our target is 36 and we have a closing stop beneath 29.00. Today's action is nice, but the bullishness would accelerate with a close above 32. One real big positive, in my opinion, is that we had a poor retail sales report for September and the widely-diversified retail ETF (XRT) is higher today by nearly 1%. That's a sign that bad news is already priced into this group.
All 4 active trade alerts remain solid technically.
Today's Movers
Here are two movers today that have very interesting technical setups:
SKX:
SKX is approaching a potential breakout of a bullish ascending triangle continuation pattern. Keep in mind that SKX is part of the red-hot footwear group ($DJUSFT), so a breakout in a stock like this is more significant than if it were in a group that was weaker. It will need more volume on its breakout to confirm a pattern measurement to 40.50-41.00.
MAT:
MAT has been weak, but is part of a strengthening toys industry ($DJUSTY). Overhead gap and price resistance lines have clearly been drawn just below 12.00. A breakout above 12 on increasing volume would likely signal a further advance.
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:
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
September retail sales: -0.3% (actual) vs. +0.3% (estimate)
September retail sales less autos: -0.1% (actual) vs. +0.2% (estimate)
August business inventories: +0.0% (actual) vs. +0.3% (estimate)
October housing market report: 71 (actual) vs. 68 (estimate)
Beige book to be released at 2:00pm EST
Happy trading!
Tom