EB Daily Market Report - Tuesday, October 22, 2019
Executive Market Summary
- History is not on the bulls' side this week as October 22-27 is the worst week of the year
- Big reversal on the NASDAQ today as solid opening gains have turned to losses
- Energy (XLE) and defensive sectors leading the charge today
- Biogen, Inc. (BIIB) up 26% on positive Alzheimers trial results plus earnings beat; biotechs ($DJUSBT) surge to 3 month high
- Banks ($DJUSBK) show continuing strength, as do transports ($TRAN)
- Our remaining two Active Trade Alerts are mixed
Market Outlook
Historically, we have to be aware of the tendency to move lower this week. From the October 21st close (yesterday) through the October 27th close (Sunday, so this year it's through Friday's close), the S&P 500 has produced annualized returns of -43% since 1950. That qualifies this week as the absolute worst week of the year historically. It comes at a time when many of our key indices and sectors are challenging all-time closing high resistance. While the market looks technically-sound to me, some churning likely makes sense. The following chart shows the NASDAQ hitting overhead resistance before turning lower today:
Back and forth action between overhead resistance near 8200 and the rising 20 day EMA at 8055 should be expected, but I'm still looking for this consolidation to resolve itself to the upside, especially given the renewed interest in transportation stocks ($TRAN).
Sector/Industry Focus
I've been waiting on technical developments to grow more interested in the very volatile and potentially explosive biotech group ($DJUSBT). Well, Biogen, Inc. (BIIB) provided quite a boost this morning with an earnings beat and, more notably, positive trial results for its Alzheimers drug. Biotechs have shot past short-term overhead resistance, but we've seen this a few times in 2019. One development that we haven't seen for awhile, however, is the DJUSBT:SPX relative ratio trending back above its 20 week EMA:
The relative PPO is turning higher, which isn't a signal of bullish momentum. But it is a signal of slowing selling momentum, which is a positive first step, along with crossing back above its relative 20 week EMA. On an absolute basis (bottom panel of above chart), the DJUSBT has broken a short-term downtrend line (red-dotted line), but has much bigger resistance near 2050. Still, we could see another 5% run before hitting that overhead resistance.
Strong Earnings ChartList (SECL)
Because the NASDAQ hit short-term overhead price resistance and this is historically a bearish week, I decided to run an overbought scan against our SECL, looking specifically for stocks that might make sense to sell in the very near-term with hopes of buying them back cheaper. The following 18 stocks on the SECL have RSIs above 70:
BAC, BMCH, DG, FAST, FFIN, FRC, JPM, KSU, LEN, NKE, OMI, PNC, RH, SNX, SPWH, STT, TGT, UNH
Of these, I looked for other corroborating evidence suggesting a possible near-term top. One stock, in particular, is screaming for a rest.
BMCH:
I really like BMCH as it's a leading home improvement retailer ($DJUSHI) and that's been a very strong group. But it's now 20% above its rising 20 week EMA and the black arrows above show that weekly RSIs above 70 have been especially bearish for the stock. If I owned BMCH, it would make sense to lighten the load here.
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 (-0.44%) - earnings date is November 5th. ZBH has been consolidating for the past week since climbing above its 20 day EMA. Given the historical bearishness this week, we will continue to keep our closing stop beneath that 20 day EMA, currently at 136.39.
ZUMZ (+0.98%) - earnings date is December 5th. ZUMZ has been a very strong performer and is looking to close above key closing price resistance at 33.04. Volume is fairly light and isn't really confirming the breakout, so a pickup in volume is something to look for this afternoon.
Today's Movers
BIIB's surge today is lifting biotechs ($DJUSBT) in general. I thought it would make sense to look to see what others might be trying to make key breakouts. Here are two:
VRTX:
We haven't made the breakout yet on VRTX, but we certainly tested the key high and did so on exceptionally heavy volume. VRTX is a large cap biotech. While it's still quite volatile, it's not nearly as volatile as many small caps - like PRTA below.
PRTA:
PRTA is a small cap biotech, which adds tons of risk and volatility, so be sure you're comfortable with that before considering a trade here. 9.25 was touched earlier today and that's clearly been the level of price resistance as we've hit it on multiple occasions without being able to close above it. An increase in volume as PRTA clears 9.25 could lead to significant short-term gains. But again, the risk here is very high.
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:
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
September existing home sales: 5,380,000 (actual) vs. 5,440,000 (estimate)
Happy trading!
Tom