EB Daily Market Report - Monday, October 21, 2019
Special Note - Today's Q3 Earnings Webinar
Be sure to join me at 4:30pm EST this afternoon for our Q3 Earnings webinar. I'll be taking a look at companies that have already reported, but more importantly giving you views of what to expect from key upcoming reports, including all of the FAANG stocks that have yet to report. When you are signed in at earningsbeats.com, you can simply go to the home page. There's a link there that will take you to the online webinar room. Please join me!
Executive Market Summary
- U.S. equities are on the rise with the S&P 500 back above 3000; the all-time high price resistance is at 3025
- The Dow Jones is lagging as Boeing (BA, -3.47%) remains under big pressure and Coca Cola (KO, -1.85%) fills its earnings gap from last week
- Banks ($DJUSBK) have broken out - a major bullish development for the market (see Market Outlook below)
- Despite crude oil prices ($WTIC) falling 1.5% and back below $53 per barrel, energy (XLE) leads today's action
- Financials (XLF) are also performing extremely well given the development in the banking space
- Defensive sectors are trailing the action today, which is exactly what we want to see on a big rally.
- Our remaining two Active Trade Alerts are both higher
Market Outlook
I just wrote about banks ($DJUSBK) on Friday, but today's breakout is worthy of a repeat. The 10 year treasury yield ($TNX) is up 5 basis points today and that rotation from defensive treasuries is aiding the S&P 500 advance today as the S&P 500 is now back above 3000. Banks are helping to fuel that advance as the group makes a major breakout today:
I think this breakout and its significance is quite apparent. The DJUSBK has failed at overhead price resistance in the 465-467 area on numerous occasions in 2019. Unless we see a big reversal this afternoon, the rising bank index will be a catalyst to send U.S. equity prices much higher in Q4 2019 and into 2020.
Sector/Industry Focus
Technology (XLK) fell on Friday below its 20 day EMA, but managed to recover and close back above it. Today, the XLK is back among the sector leaders as it preps for what I believe is going to be another breakout to all-time highs:
The XLK is in a very bullish A-B-C-D-E ascending triangle continuation pattern where we should expect a breakout to continue the prior trend. A member wrote in recently and asked about the A-B-C-D-E and wondered about its significance. I simply like to point out how these patterns develop. We need 3 equal highs (A, C, and E where the breakout comes on E) and 2 higher lows (B and D). The distance from A to B is generally the initial pattern measurement. In the case of XLK, Point A is roughly 82.50 and Point B is just below 75, so let's call it a 7.5 point measurement that would confirm on a definitive breakout above 82.50. That would then measure 7.5 points higher, or to 90. That certainly adds to my bullish bias.
Strong Earnings ChartList (SECL)
First, there was an update to the SECL over the weekend and we've sent out this updated ChartList to all our members that are also StockCharts.com EXTRA members or above. So check your email if you haven't received the new list. There were close to 30 new stocks added, but close to 200 were removed as they will be reporting earnings over the next 1-3 weeks. The companies that report better-than-expected revenues and EPS will be right back on this list.
I reviewed the remaining charts on this list and looked for stocks that report 3-4 weeks from now and might be poised for a pre-earnings rally. Here are two to consider:
APPS:
APPS has been a tremendous performer in 2019 and I like looking for continuation patterns when a stock finally decides to take a rest. APPS could be in either an inverted head & shoulders pattern, or possibly a cup. Both are bullish and now that APPS is trading back at a one month high, it could be on its way to testing prior highs before its next earnings report in November. (Disclosure: I own APPS and it's part of our Aggressive portfolio)
SHAK:
Similar to APPS, I think SHAK is consolidating its huge gains in 2019. I find it particularly bullish that Chipotle Mexican Grill (CMG), another restaurant stock, is threatening a breakout on increasing volume. I look for restaurant stocks to regain their relative strength. If I'm right, stocks like CMG and SHAK should benefit. Watch SHAK for a potential cup to form. The initial technical clue will be its ability to clear its downtrending 20 day EMA. (Disclosure: I own SHAK and it's part of our Aggressive portfolio)
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:
ZBH (+0.36%) - earnings date is November 5th. ZBH traded lower earlier in today's session, but it's rebounded and looking quite solid as it continues to trade above its rising 20 day EMA. Remember, we've raised our stop on ZBH to any CLOSE beneath its 20 day EMA to be sure to lock in profits.
TWTR (+2.69%) - earnings date is October 24th. TWTR was stopped out on Friday at 38.99. It was unfortunate as TWTR seems to be regaining some strength today. It's currently higher and back to our original alert price. TWTR reports its earnings on Thursday so keep that in mind if you've decided to hold. Gap support at 38.07 is the key price level to watch to the downside, while a close back above the 20 day EMA, currently at 40.43, would be bullish.
ZUMZ (+1.16%) - earnings date is December 5th. This could be a big day technically for ZUMZ as its breakout level is 33.04 - exactly where it opened today. A close above that level could lead to our target price of 36.00. Failure at 33 wouldn't be a bad thing as we now have a cup in play:
If you'd like to capture profits at the current level, it wouldn't be a bad strategy as a handle could form back to the rising 20 day EMA, where re-entry would be solid. ZUMZ remains one of the best apparel retailers ($DJUSRA) to own.
Today's Movers
What's moving today on volume? Well, I ran a scan of all NYSE stocks (no ETFs) looking specifically for stocks that have traded at least 1.25x their average daily volume as of 11:20am EST. Here are the 13 stocks that met this volume scan in SCTR (in parenthesis) order:
TNK (99.3), ASX (90.4), COTY (84.1), LCII (78.8), SNN (54.6), RCUS (29.1), KMT (21.5), KWR (16.6), BA (7.2), INFY (7.2), EROS (4.8), GIL (2.5), MDR (1.6)
Here are the two that look most bullish and interesting to me:
COTY:
COTY is seeing a nice breakout above its Sept/Oct high near 10.80 and volume is accelerating - a bullish development indeed. I've drawn a light red price resistance line just above 11.60 as that's where the buyers disappeared in early July after the heavy volume breakdown. 11.60ish was the reaction high back then and could serve to alert sellers again. Closing above that level on increasing volume certainly could lead to much more buying near-term.
LCII:
95.00-96.00 has been key price resistance on LCII, but perhaps the bigger development is that LCII's industry group is recreational products ($DJUSRP) where we've seen a recent price breakout. A strengthening stock in a strengthening group is usually an ingredient for trading success. The volume can be a little light sometimes (not today obviously), but that's really the only negative I see here.
Earnings Reports
Here are the key earnings reports for this week, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks that are reporting are highlighted in BOLD. The number of companies reporting will increase significantly over the next few weeks so please make sure you check for earnings dates for any companies you own or are considering owning:
Monday, October 21:
SAP, AMTD, CDNS, HAL, CE, ELS
Tuesday, October 22:
PG, NVS, MCD, TXN, UTX, NEE, LMT, UPS, CNI, SHW, KMB, BIIB, TRV, EQR, DFS, PCAR, CMG, CSGP, FITB, CNC, SNAP, EDU, NUE, RF, HAS, TRU, DGX, WRB, PHM, TER, WHR. Others below $10 bil: SKX, MANH, MTH
Wednesday, October 23:
MSFT, BA, PYPL, TMO, LLY, CAT, ANTM, EQNR, VALE, BSX, GD, WM, NSC, NOW, EW, TSLA, VRTX, LVS, F, BCS, LRCX, EBAY, BX, ORLY, CP, APH, HLT, SCCO, RCI, XLNX, ALXN, ESS, NTRS, AMP, QSR, EFX, ALGN, GWW, NDAQ, SUI, FCX, MKTX, AEM, BMRN, TDY, ROL, RJF, VAR, GL, FTI, PKG. Others below $10 bil: FFIV, SLAB, WGO
Thursday, October 24:
AMZN, V, INTC, CMCSA, AZN, DHR, MMM, GILD, ABEV, NOC, RTN, AEP, ILMN, BAX, COF, AFL, VLO, RBS, DOW, ROP, XEL, HSY, TWTR, NOK, LUV, CAJ, CCEP, FE, TROW, FTV, RCL, SWK, TAL, VRSN, CERN, STM, RMD, CINF, CMS, LH, AJG, PFG, HBAN, ODFL, CTXS, UHS, COF, AAL, TSCO, SIVB, WST. Others below $10 bil: CY, JNPR, FSLR, DECK, ELY, EHTH, BOOT
Friday, October 25:
VZ, BUD, TOT, CHTR, ITW, PSX, AON, IBN, VFC, VTR, VIV, WY, BEN. Others below $10 bil: HUN
Economic Reports
None
Happy trading!
Tom