EB Daily Market Report - Friday, October 18. 2019
Executive Market Summary
- September leading indicators were reported below expectations
- Profit taking after a week of solid gains seems to be in order today as all of our major indices are lower; NASDAQ shares are being hit hardest
- The heaviest selling is taking place in internet ($DJUSNS), software ($DJUSSW), semiconductors ($DJUSSC), and computer hardware ($DJUSCR)
- Gold ($GOLD), crude oil ($WTIC), and bonds (TLT) are flat today
- Strength is seen mostly in defensive areas, which makes some sense given the recent outperformance in aggressive areas
- Our Active Trade Alerts are mixed with TWTR under pressure; more on that below
Market Outlook
Banks ($DJUSBK) remain on the verge of a critical breakout. After a series of stronger-than-expected earnings reports from bank component stocks, the DJUSBK sits almost exactly on key price resistance:
This is a reprint of a chart I showed back on September 26th. Not too much has changed. For financials to begin to lead the stock market higher, we need to see this overhead price resistance cleared. We haven't been able to do it thus far.
Sector/Industry Focus
Yesterday I discussed the likely recovery in consumer staples (XLP) and we're seeing that today as the group is neck-and-neck with real estate (XLRE) atop today's sector leaderboard. The XLP was testing trendline support so an absolute bounce on the chart was to be expected:
I believe we'll see XLP strengthen and clear overhead resistance near 61.50. It will likely be among the sector leaders during a short-term pullback or period of consolidation. After that, I expect it to move higher on an absolute basis, but to trail the S&P 500 on a relative basis as our major indices break out to all-time highs.
Strong Earnings ChartList (SECL)
I think this is a good chance to step back and gather ourselves before what I expect will be a very significant move higher into year end. I haven't yet updated the SECL, but will do so this afternoon. We'll have a much smaller SECL to work with starting next week as perhaps as many as 200 companies on the list will be reporting earnings the next 2-3 weeks. In the meantime, here's one stock that has fallen back into a price support zone and it remains a relative leader in software:
SNPS:
The underperformance in the DJUSSW has taken it back to key relative support from early-June. It really needs to hold this level or it might be time to look elsewhere for market outperformance. SNPS remains a software leader. If I were to take a new position in software, I'd want to stick with relative leaders....and with tight stops. The gap support zone above provides that for SNPS.
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 - earnings date is October 24th. We were stopped out on Thursday's close of 356.26. With NOC's earnings date just a few days away, we really didn't have much time for a rebound so we made the decision to take a small loss and fight another day.
ZBH (-0.52%) - earnings date is November 5th. ZBH, though fractionally lower today, remains nicely in an uptrend. We'll hold it so long as it continues to close above its rising 20 day EMA, currently at 136.25.
TWTR (-3.13%) - earnings date is October 24th. TWTR having another disappointing day, this time moving lower with the overall internet space ($DJUSNS). On any further pullback in the DJUSNS, watch to see if the rising 20 day EMA, currently at 1770, holds. I believe it will. TWTR is well below our closing stop of 39.50, so unless it reverses course this afternoon, we'll exit.
ZUMZ (+1.27%) - earnings date is December 5th. ZUMZ continues to trade well. Yesterday's close at 31.99 was disappointing given the intraday move well above 32 resistance. However, we're trading back above 32 today.
Our 3 remaining active trade alerts remain solid technically, although TWTR closing beneath gap support at 38.12 would be bearish.
Today's Movers
It's Friday and I didn't see a whole of intriguing stocks. Since it seems to be profit taking day in many aggressive areas of the market, let's hold off until Monday for additional trade ideas.
Earnings Reports
Here are the key earnings reports for today and Monday, 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:
Friday, October 18:
KO, HDB, AXP, SLB, SYF, STT, CFG, KSU
Monday, October 21:
SAP, AMTD, CDNS, HAL, CE, ELS
Economic Reports
September leading indicators: -0.1% (actual) vs. +0.2% (estimate)
Happy trading!
Tom