EB Daily Market Report - Wednesday, October 23, 2019
Executive Market Summary
- Earnings reports are accelerating and we're seeing gaps in both directions
- Texas Instruments (TXN) gapped nearly $12 lower, but has since recovered 30% of it; Avery Dennison (AVY) is up 7.5% on its results
- Commodities higher as gold ($GOLD) approaches $1500 an ounce
- Healthcare (XLV), communication services (XLC), and materials (XLB) leading a U.S. market that's fractionally higher; S&P 500 is up by 0.19%
- Dow Jones being led by two recent laggards - Boeing (BA) and Travelers (TRV)
- Our only Active Trade Alert, ZUMZ, down slightly after breaking out on Tuesday
Market Outlook
Consumer stocks have been very strong over the past month. To give you an example, the S&P 500 closed at 2991 on September 23rd. Here we are, one month later, with the S&P 500 at 3001, up 10 points or 0.33%. Check out the performance of certain industry groups within consumer discretionary over this past month:
That's a lot of outperformance in the key consumer discretionary space and is one reason why I remain very bullish. If Wall Street was looking ahead and saw a possible recession and a weakening economy, the above groups would not be leading.
We're going higher in time.
Sector/Industry Focus
Software ($DJUSSW) has been a darling of Wall Street for a very long time, but it's been under tremendous pressure of late as the overall market keeps shifting more towards value and less towards growth. That is having a direct impact on many software stocks. The group had a very rough day on Tuesday, finishing near key price support at 2650. Today, it's bouncing, but it's still early in the session. Here's the current view:
The weakness seen in August and again earlier this month saw the DJUSSW fall to 2650. Yesterday's close tested it again. The more a price point is tested, the more important it becomes. If the DJUSSW pierces 2650 on a closing basis, we could be in for much more short-term selling, perhaps down to test that June low at 2450. I believe that is a MAJOR price support for software.
Strong Earnings ChartList (SECL)
I ran a scan of our SECL to check out the stocks that show both today's open and its current price above the 20 day EMA, while printing an intraday low beneath that 20 day EMA. The idea is to look for potential reversals off the 20 day EMA. This scan was run as of 11:15am EST and it returned 5 stocks:
ADNT, CTAS, HELE, LCI, NKE
Of these, I like CTAS and NKE:
CTAS:
CTAS is a relative leader among its peers and recently reported strong quarterly results. A confirmed breakout would be a close above 270. If it's beginning a new uptrend, today's test of the rising 20 day EMA should serve as a low.
NKE:
I really like NKE on this 20 day EMA test. In fact, you may see this one coming out as an Active Trade Alert. The 20 day EMA and 91 represent two nice entry points into a stock that's very likely to benefit from tailwinds in consumer discretionary, especially footwear ($DJUSFT). It's likely down today in sympathy with Skechers (SKX), which fell short of its EPS estimate.
Active Trade Alerts
We have significantly lowered our trading exposure given the historical bearishness this week (The S&P 500 has a -43% annualized return from October 21st close to October 27th close since 1950). We will be looking to add alerts later this week. Here's a brief update of our current Active Trade Alerts:
ZBH (+0.68%) - earnings date is November 5th. ZBH closed below our revised closing stop, which was the 20 day EMA. Therefore, we are out of this position at Tuesday's close of 134.82. It was a small winner and one we might revisit in the future. We'd likely wait to see how ZBH reports its earnings, but I'd look for solid results based on the way it's been trading among its peers.
ZUMZ (-0.82%) - earnings date is December 5th. ZUMZ broke out on Tuesday, closing above key price resistance at 33.04, which is bullish. We're seeing a bit of profit taking today, but ZUMZ looks very solid technically.
Today's Movers
This morning, on Trading Places LIVE, I highlighted the tremendous strength that's taking place in several areas within consumer stocks - both consumer discretionary (XLY) and consumer staples (XLP). Therefore, I wanted to find stocks in these two areas that might be of technical interest. Here are a few:
HLT:
HLT reversed off key price support and it's been one of the leaders in the hotels industry ($DJUSLG). Given the money that's been rotating into consumer stocks, I like a continuing push higher here.
JD:
JD has been trapped in a consolidation phase for quite awhile, but it's a broadline retail ($DJUSRB) leader. If it can break above price resistance near 32.25, I expect that will begin another uptrend. The recent bounces off the rising 20 day EMA may be providing our initial clues of an impending advance.
BURL:
BURL is testing its 50 day SMA for the first time since its late-August, earnings-related gap higher. This is a strong reward to risk entry point on an apparel retail ($DJUSRA) leader.
Earnings Reports
Here are the key earnings reports for the balance of 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:
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
August FHFA house price index: +0.2% (actual) vs. +0.4% (estimate)
Happy trading!
Tom