EB Daily Market Report - Friday, October 25, 2019
Executive Market Summary
- Amazon.com (AMZN) deflated the market with its lackluster results, but its relative weakness among broadline retail peers signaled it was likely to be a rough report
- Earnings mostly are coming in ahead of expectations, however, and that's good news for bulls
- October consumer sentiment came in just below expectations and the 10 year treasury yield ($TNX) is up slightly to 1.77%
- After early weakness, our major indices are rallying with the S&P 500 within 6 points of its all-time high close
- Aggressive sectors are leading, while defensive areas lag; technology (XLK) is atop the sector leaderboard
- Among our two Active Trade Alerts, NKE was down earlier but is now slightly positive, while ZUMZ rebounds nicely from yesterday's selling
Market Outlook
Well, thus far the bulls are negotiating the historically bearish waters this week and the S&P 500 remains poised for a breakout to an all-time high. Here's a current look at the chart:
As a reminder, an ascending triangle, upon breakout, has a measurement that's determined by the top of the triangle to the initial low. That's roughly 200 points. A breakout above 3025 will measure initially to 3225. I believe the S&P 500 could make that move by December 31st.
Sector/Industry Focus
Technology (XLK) is having another strong day and it's on the verge of a breakout to a new all-time closing high. It's hard to paint this as anything but bullish:
Leadership from technology normally results in higher S&P 500 prices. Because the XLK has been consolidating, its RSI is only at 59 as it potentially makes a breakout. That could lead to a surge higher in tech shares next week.
By the way, as bearish historically as this week has been over the last 70 years, next week is equally as strong historically.
Strong Earnings ChartList (SECL)
Yesterday, there were 12 stocks on the SECL making new 52 week highs. Today, that number is up to 15. Here they are:
AMAT, ARMK, BAC, CPRT, JPM, KLAC, LEN, O, PDD, PNC, RBA, RH, SNX, SPWH, VIPS.
I like these two:
RBA:
Check out the improving relative strength the past three months, prior to this breakout. The ascending triangle pattern measures up to 42.50 so it would be best to enter a trade here on a pullback to the 39.75-40.00 area with a tight closing stop.
VIPS:
Volume is beginning to accelerate and VIPS is volatile, but it certainly looks like it's heading higher. Relative strength is awesome. A future pullback to the 10.00 area would look a solid reward to risk entry point.
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 added one alert Wednesday (NKE) and may add another 1 or 2 this afternoon. Here's a brief update of our current Active Trade Alerts:
ZUMZ (+2.17%) - earnings date is December 5th. ZUMZ failed to hold short-term support at 33.04 yesterday, but it did manage to rebound before losing 20 day EMA support. A move back through 34.15 is what I'd like to see here.
NKE (+0.08%) - recently reported earnings so the next earnings date won't be for another couple months. NKE was down again this morning, but has rebounded and turned positive. Unfortunately, it turned just before our second entry at 90.50 would have triggered.
Today's Movers
Here are a couple of earnings-related movers to beware of:
AMZN:
During the Q3 Earnings webinar last week, I suggested that AMZN would likely struggle after its earnings report. Why? Well check out its relative weakness for the past few months heading into this report. Wall Street was bailing on AMZN. But after its open held price support, the buyers are returning. 1700 remains key price support while the downtrend line above should be watched. A breakout above that line would be bullish for AMZN.
ILMN:
Be careful here. Given the relative weakness and the heavy volume today, a confirmed breakdown in price beneath 287-288 would be very bearish. Barrish a major reversal this afternoon, I believe 265 is in play here.
Earnings Reports
Here are the key earnings reports for today and Monday, 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 couple weeks so please make sure you check for earnings dates for any companies you own or are considering owning:
Friday, October 25:
VZ, BUD, TOT, CHTR, ITW, PSX, AON, IBN, VFC, VTR, VIV, WY, BEN. Others below $10 bil: HUN
Monday, October 28:
GOOGL, T, HSBC, TMUS, EPD, WBA, WELL, NXPI, AVB, CAJ, SBAC, WCN, DTE, SPOT, ARE, QSR, RYAAY, CHKP, L, AKAM, CNA, VNO, BRO, RE. Others below $10 bil: XPO, BYND, OMF
Economic Reports
October consumer sentiment: 95.5 (actual) vs. 96.0 (estimate)
Happy trading!
Tom