EB Daily Market Report - Wednesday, November 6, 2019
Executive Market Summary
- CVS Health Corp (CVS) and Humana (HUM) report solid results with positive market reactions
- U.S. indices are flat to lower with the NASDAQ and S&P 600 (small caps) leading to the downside
- The 10 year treasury yield ($TNX) is lower by 2 basis points to 1.84%, although it's off earlier lows
- Defensive sectors consumer staples (XLP) and utilities (XLU) leading on a relative basis
- Energy (XLE) gives back some recent gains and is the primary laggard; crude oil ($WTIC) is down fractionally
- Our three Active Trade Alerts are mixed today
Market Outlook
I've discussed recently that we're in a very bullish seasonal period for U.S. equities. It doesn't get much better than from the October 27th close to the January 18th close. We're now firmly in this period. But history doesn't suggest that we'll go up every day. If we're going to pullback, from a seasonal perspective, we're likely to see profit taking kick in as early as tomorrow. Here are the 70 year annualized returns for the S&P 500 over the course of the next four calendar days:
7th: -10.83%
8th: +1.13%
9th: -17.63%
10th: +4.18%
Keep in mind that the S&P 500 has averaged gaining roughly 9% per year since 1950. If every day was created equal, we'd see +9.00% for each day above. Instead, we see annualized returns well beneath that level. If between today or tomorrow we see the S&P 500 climb above 3086, we'll print a negative divergence on its 60 minute chart. That could start a period of shallow selling. I wouldn't expect a huge selloff, but 1-2% wouldn't surprise me at all. After selling that could take us to 3025-3050, I'd look for another big push higher.
Sector/Industry Focus
I believe industrials (XLI) will lead the stock market higher into late-2019 and potentially throughout 2020. Obviously, we'll need to continue to monitor relative strength developments, but don't be surprised if transports ($TRAN) continue their torrid recent run to the upside to help lead the XLI to the relative strength promised land. Based on the chart below, I'd say it's time for industrials to take over leadership as well:
The above chart helps to illustrate how leadership changes in the stock market from time to time. We remain in a bull market the entire time, but we go through different cycles. It certainly appears that industrials could be poised for leadership in 2020.
Strong Earnings ChartList (SECL)
I ran a scan of SECL stocks with a SCTR (StockCharts Technical Rank) score below 50 to see if any are set up with solid reward to risk setups. Of the 157 stocks on the SECL, 25 have SCTR scores below 50. Here are the 27 stocks (in SCTR order, highest to lowest) with the 2 I feel are worth discussing at current price levels:
TMO, NDAQ, ORI, MLM, MANH, SHOP, EFX, TENB, FFIV, NKE, PEP, CONN, CNC, BJRI, CCI, PAYX, CLDR, CDNS, DGX, LH, CMG, MDB, PFPT, TEAM, BYND
TMO:
TMO is clearly being held back by a weakening medical equipment group ($DJUSAM). Among its peers, it remains a leader and it's also in a bullish (although sloppy) cup with handle continuation pattern. Should strength return to the DJUSAM, I expect TMO will break out and lead the group.
NDAQ:
While NDAQ has been consolidating, I see volume trends improving. In "Wyckoff-speak", it looks to me like a re-accumulation phase, which would be confirmed by a high volume breakout. Investment services ($DJUSSB) has been an awful area of the market, yet NDAQ moved to a 52 week relative high vs. the S&P 500 in September. I think that speaks to its relative strength. I'd watch for a breakout of the current symmetrical triangle. Following an uptrend, these patterns tend to be bullish, so I'd expect a breakout rather than a breakdown.
Active Trade Alerts
Here are comments on our three current active alerts:
ZUMZ (-1.59%) - earnings date is December 5th. After a solid day yesterday, ZUMZ has reclaimed its 20 day EMA. There's some selling today, however, but volume is very light.
NKE (-0.70%) - recently reported earnings so the next earnings date won't be for another couple months. After gapping higher this morning and approaching its 20 day EMA, NKE has once again been very disappointing. It's about 1.50 off its earlier high. I'll reiterate that our stop has been raised to any INTRADAY move beneath 88.94. Very disappointing action here if I'm being honest.
ROST (+0.28%) - earnings date is November 22nd. For the first time in close to a week, ROST has traded with a lower low than the prior day. While that's not necessarily a sign of an impending pullback, it could lead to additional consolidation. In the very near-term, 113 could be problematic to the upside. After gapping lower on October 21st, the reaction high has been just above 113. Also, a move to 113 almost certainly would result in a negative divergence on the 60 minute chart. I still love the chart, but the short-term could be become more dicey.
Today's Movers
I reviewed all 30 Dow Jones component stocks to see which have improved the most over the past couple months. Apple (AAPL) remains one of my favorites, but it's simply remained strong and didn't need to improve. Here are the four that I'd say have improved the most:
CAT:
CAT has been rapidly improving as volume trends have improved to coincide with both absolute and relative breakouts. Hurt by trade war talks, the market now seems to be either overlooking potential negative trade war developments in the future or simply believes CAT will overcome them. Either way, CAT has improved greatly in recent weeks.
DOW:
After losing nearly one-third of its market cap in less than 5 months over overblown trade war fears, DOW is on a roll and quickly making up lost ground. Its industry group, commodity chemicals ($DJUSCC), has just moved to a 3 month relative high vs. the S&P 500. I like DOW although a move back to 51-52 would represent better entry.
JPM:
Rising treasury yields and increasing spreads plays perfectly into the hands of bank stocks. JPM shows on its chart above that it's a relative leader among banks. If you're going to own a bank, why not one of the best?
UTX:
Despite being part of a very weak aerospace group ($DJUSAS), UTX has been a standout performer thus far in Q4 and has broken out to an all-time record high. UTX would be on a short list for me if I had to pick a stock to hold long-term.
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. Please make sure you check for earnings dates for any companies you own or are considering owning:
Wednesday, November 6:
QCOM, CVS, FISV, EOG, HUM, MFC, BIDU, ET, GOLD, WEC, SLF, SQ, FLT, GIB, EXPE, FOXA, IAC, VMC, ANSS, LBTYA, CBRE, ROKU, DISH, EVRG, CNHI, BR, CTL, DXCM, ATO, WYNN, HOLX, IQ, CVNA, GDDY, AES, EQH. Others less than $10 bil: MRO, TRIP, SEDG, NTRA, AYR, FIT, CECO, ELF
Thursday, November 7:
DIS, BKNG, ZTS, APD, ATVI, KDP, JCI, MNST, CNQ, ABC, MTD, BAP, AZUL, MT, CNP, DISCA, CAH, SYMC, BIP, TTWO, BCH, XRAY, NCLH, PNW, NRG. Others less than $10 bil: TTD, DBX, RL, ZG, PLNT, SVMK, STMP, SYNA
Friday, November 8:
ENB, DUK, HMC, AEE, MGA. Others less than $10 bil: None
Economic Reports
Q3 productivity: -0.3% (actual) vs. +1.0% (estimate)
Happy trading!
Tom