EB Daily Market Report - Thursday, October 17, 2019
Executive Market Summary
- September housing starts came in below expectations, but building permits were stronger than expected
- September industrial production and capacity utilization both reported below expectations
- UK and European Union reach a new Brexit deal, but it must be approved by the UK
- 9 of 11 sectors are higher with one notable exception - technology (XLK) - which is lower by 0.50%
- IBM reported disappointing results, negatively affecting technology
- Active Trade Alerts mixed again today with biggest disappointment TWTR, which continues to underperform despite a strengthening internet space
Market Outlook
Rising volatility is a negative for equities, while falling volatility is synonymous with rising equity prices. The following is a current look at the Volatility Index reaching key short-term support. If this level breaks, it would add another layer of bullishness to the current advance:
The uptrend in the VIX ended last Friday and volatility has been coming out of the market much like air does from a balloon. That significant drop in "expected volatility" has coincided with a short-term breakout in the S&P 500 above its recent downtrend line. The VIX has now reached a key support level just above 13. Should we see the VIX trade with a 12 handle, it likely suggests the 3025 price resistance on the S&P 500 is very likely to be cleared.
Sector/Industry Focus
I've been waiting for internet stocks ($DJUSNS) to start rolling and we've seen that over the past two weeks. The group, however, has reached a critical area of price resistance from 1800-1825 where the group has failed on 7 different occasions since early May. Thus far, it appears to be failing again as today's intraday high was 1823:
A reversal today and strong close would be very encouraging. But a weak finish could lead to further short-term profit taking based on history.
Strong Earnings ChartList (SECL)
I looked at a number of stocks on our SECL and wanted to point out a couple that could be at key reversal points today:
KLAC:
KLAC has been a tremendous performer in the semiconductor space ($DJUSSC), but it seems to be running out of volume to the upside just as its momentum appears to be fading as well. I love KLAC, but given today's shooting star candle, and assuming it sticks through today's close, this could be a reversal point for the stock.
SYNH:
SYNH is a great absolute and relative performer in the biotech area ($DJUSBT). However, given the overall weakness in that group and the fact that SYNH is bumping up against key price resistance, it would definitely make sense to take profits if I owned it.
Active Trade Alerts
I've added earnings dates to make everyone aware as we will not hold our trade alerts into earnings reports. Here's a brief update:
NOC (-0.73%) - earnings date is October 24th. There is no longer a second entry (355 was removed yesterday) and we have raised our closing stop to 360. I still like the defense industry ($DJUSDN) and expect the group to go higher in time, but NOC reports earnings in a week. If the stock breaks down below 360, we won't have much time for it to recover before earnings. Therefore, we raised the stop to either take a small loss or a small gain if we see some strength over the next few days.
ZBH (+1.44%) - earnings date is November 5th. ZBH is acting quite strong, yesterday bouncing nicely after testing its rising 20 day EMA. Today, ZBH is trying to make a push toward 140. WE ARE RAISING OUR STOP TO ANY CLOSE BENEATH THE 20 DAY EMA.
TWTR (-0.93%) - earnings date is October 24th. We eliminated our second entry at 38.75 yesterday and we've raised our closing stop to any close beneath 39.50. Currently, TWTR is just above that level. Honestly, we've seen a very nice rise recently in internet stocks and TWTR has gone nowhere - very disappointing. Let's stay disciplined and exit with a small loss if closing support at 39.50 fails to hold.
ZUMZ (+1.10%) - earnings date is December 5th. Volume is accelerating a bit today as ZUMZ breaks above key short-term price resistance at 32. Holding above that level on the close would be much more bullish than the alternative. Next stop to the upside will be 33.04, the closing high from September 9th.
All 4 active trade alerts remain solid technically.
Today's Movers
Here are two of the most active stocks today:
ENDP:
Volume trends have turned significantly bullish over the past 5 weeks or so. Excitement in the stock seems to be stemming from a new FDA application filed in early September, along with the settlement of opioid cases. Uncertainties appear to be lifting, providing the potential for big upside. As with any small pharma, however, you must be willing to take on much higher risks.
INTC:
INTC has initially been turned away at price resistance near 53. Many areas of the market are beginning to show uptrend tendencies, meaning that rising 20 day EMAs are holding as support much more often. That upcoming test will be short-term critical for INTC. In the meantime, INTC's relative strength to its semiconductor peers ($DJUSSC) needs to break above that relative resistance area that's marked with a circled red arrow. I'd look elsewhere in semis until that line is cleared.
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:
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
Initial jobless claims: 214,000 (actual) - no estimate provided
September housing starts: 1,256,000 (actual) vs. 1,300,000 (estimate)
September building permits: 1,387,000 (actual) vs. 1,335,000 (estimate)
October Philadelphia Fed survey: 5.6 (actual) vs. 7.1 (estimate)
September industrial production: -0.4% (actual) vs. -0.2% (estimate)
September capacity utilization: 77.5% (actual) vs. 77.8% (estimate)
Happy trading!
Tom