EB Daily Market Report - November 7, 2019
Executive Market Summary
- U.S. futures were strong right out of the gate this morning as China agreed to roll back tariffs
- Crude oil is up 1.77% to 57.35 per barrel; Energy (XLE) is strong as a result
- Strongest sectors include communication services (XLC), financials (XLF), and technology (XLK)
- Aggressive sector leadership is an excellent long-term sign for U.S. equities
- 60 minute negative divergences on our major indices could derail current rally, although any upcoming selling will likely be limited to 1.0-1.5%
- Tons of earnings will be released between today and tomorrow; ROKU, one of the more volatile names, reported and is down 11%, but that's well off its earlier low
- Our two Active Trade Alerts are higher today; NKE was stopped out intraday yesterday
Market Outlook
Transports ($TRAN) and small caps ($SML). Transports and small caps. How many times throughout 2019 have I discussed the importance of these two groups participating and, even leading, a major bull market advance? When these two groups chime in, it typically means the rally is quite sustainable. Check out this chart:
The three red arrows on the S&P 500 price chart show the 2019 tops that formed. In all three instances, transports and small caps did not break out, suggesting we remain somewhat cautious. On this latest breakout, however, the TRAN has broken its downtrend line and is now trading at its highest level in a year. Instead of seeing an S&P 500 breakout with no confirmation from transports, this time is different. That makes me much more bullish into year end and into 2020.
Sector/Industry Focus
Yesterday, I focused on the relative strength of industrials (XLI). Today, let's turn our attention to its absolute chart and breakout:
There have been a lot of failed attempts at a breakout, but there's one important difference this time. Transports ($TRAN) have caught fire and are breaking out. History tells us that when transports confirm the rally by breaking to new highs, then we need to pay close attention. The chart in the Market Outlook above speaks volumes.
Strong Earnings ChartList (SECL)
Currently there are 157 companies on our SECL. 21 of them are industrial companies. Here they are in SCTR order:
KSU, HEES, CMRE, SSD, PCAR, AIR, DOV, OC, RTN, FAST, UPS, ALLE, ALK, UTX, AIMC, CPRT, CTAS, IR, MLM, LMT, EFX.
The best of the bunch remains KSU:
Railroads ($DJUSRR) are improving along with transportation stocks in general, and KSU is the undisputed leader of its industry. 20 day tests will represent entry points.
Today will represent another breakout for UPS, unless of course it fails into the close. A failure would likely set up a short-term pullback to test its rising 20 day EMA:
A close today above 124 would signal a potential measurement to 136 (depth of cup is roughly 12 points). One downside to UPS has been the relative performance of delivery services ($DJUSAF), which still remains in a downtrend vs. the S&P 500. That could change if the group can make this breakout:
Price and trendline resistance both intersect near 1025-1030. I believe we'll see that breakout. When we do, does the DJUSAF show relative strength? If so, UPS becomes increasingly attractive.
Active Trade Alerts
Here are comments on our two current active alerts (NKE was stopped out intraday yesterday):
ZUMZ (+1.41%) - earnings date is December 5th. ZUMZ continues to straddle its 20 day EMA. I'd like to see more volume come in to accompany another closing breakout above 34.11.
NKE (+0.84%) - recently reported earnings so the next earnings date won't be for another couple months. We were disappointed to be stopped out on NKE yesterday at 88.93, but something just doesn't seem right. Gap ups are consistently being met with more sellers and this is all transpiring with a very solid market. If you've decided to hold, gap support resides at 87.18 - that's the next big support level. To the upside, it always helps technically to reclaim that 20 day EMA on a closing basis. That currently resides at 90.99.
ROST (+1.18%) - earnings date is November 22nd. ROST is attempting to clear an important short-term resistance level near 113. So far, so good.
Today's Movers
I thought I'd look for smaller stocks today that have been showing recent strength. These would definitely be more appealing for aggressive traders. I scanned for small cap stocks that are priced at $20 and lower, but with SCTR scores of at least 70. Here are three that I found technically sound:
SEM:
The straight up move on strong volume is hard to ignore. It's breaking out on a relative basis as well. Health care providers ($DJUSHP) are strengthening vs. the S&P 500 and that will only help. The biggest issue with SEM right now is that it's very overbought. Watch for an upcoming 20 day EMA test.
MAXR:
MAXR took a big hit to open 2019, but it's since recovered nicely. Heavy volume confirmed a big breakout above 10.20. The issue to watch here is the industry group. Telecom equipment ($DJUSCT) has been absolutely abysmal vs. the benchmark S&P 500 since its mid-July high and even the best industry performers can get taken down by a weak group. Therefore, if you decide to trade MAXR, make sure you identify a stop level and stick to it.
PAYS:
PAYS was one of the best stocks in the first half of 2019. A battle took place between the bulls and the bears over the summer months that ended with a big gap down to establish key support near 9.50 - right where it had broken out from in May. Key gap resistance from early-September resides at 12.04 and today PAYS is attempting to clear that important gap resistance level. A confirmed close above 12.04 today would be bullish, in my opinion.
Please keep in mind that each of the above stocks has tremendous near-term potential, but also carry with it considerable risk as well.
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:
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
Initial jobless claims: 211,000 (actual) vs. 215,000 (estimate)
Happy trading!
Tom