EB Daily Market Report - Monday, November 18, 2019
Executive Market Summary
- Trade mood in China was reported as being "pessimistic", as reported by CNBC
- Futures reversed slightly lower after that news report
- The Dow Jones is higher and trading a fresh all-time high despite this reported pessimism
- Home construction ($DJUSHB) and specialty retailers ($DJUSRS) are the leading industry groups
- Among sectors, defensive groups lead the charge today as we consolidate recent gains
- The 10 year treasury yield ($TNX) is down 2 basis points to 1.81%, also as a result of defensive positioning
- Our two Active Trade Alerts are both lower today as apparel retailers ($DJUSRA) are lower also
Market Outlook
If there's been one disappointment of late, I'd say it's been the lagging small caps ($SML) once again. I remain bullish the group, but certainly would be even more bullish if the aggressive small cap group were to lead on a relative basis during a big move higher in U.S. equities. I do want to point out one seasonal pattern that everyone should be aware of. December is historically a very strong month for small cap stocks, especially on a relative basis (compared to the S&P 500):
While June certainly stands out as a great month for small caps, so too does December. The SML outperforms the SPX only a bit more than 50% of Decembers going back the last two decades, but the average outperformance is 1.3%, trailing only June's 1.5%. November is also typically stronger for small caps, so if the SML makes the following breakout, keep all of this historical information in mind:
I believe a breakout above 1000 will lead to a very quick 10% pop in small caps to challenge that overhead price resistance and all-time high close to 1100.
Sector/Industry Focus
We've seen so many groups break out and begin to lead the stock market to all-time highs. One recent example has been within technology (XLK). The Dow Jones U.S. Electronic Equipment Index ($DJUSAI) has been sailing higher on increased volume and currently resides in a bullish flag pattern:
Volume has been increasing during this surge off the October low and notice it's not just going along for the ride with the S&P 500. It's been leading this advance, which makes it doubly powerful, in my opinion. Keysight Technologies (KEYS) has been one of the best performers in this space and it's currently one of our SECL stocks. It was featured in my DMR on October 3rd as it was testing key price support:
It's up approximately 15% in the past 6-7 weeks and should be considered for a trade on any short-term weakness. A 20 day EMA test would be a solid entry point.
Strong Earnings ChartList (SECL)
I recently received a question from a member asking how we could determine an individual stock's volatility in order to potentially trade those stocks that move the most. I realize that some of you prefer the high-flying, volatile stocks, while others would prefer trading stocks that don't move nearly so quickly. An indicator to help you manage whether the stocks you trade meet your own personal styles is the Average True Range (ATR). You can set this indicator up to track ATRs over intraday, daily, weekly, or even monthly periods. There is one problem with using the ATR, however. Higher priced stocks will have higher ATRs than lower priced stocks, so if we use ATR, we will be comparing apples to oranges. I've contacted StockCharts to see if they could write me a scan code to be able to compare our SECL stocks on an apples to apples basis. When I receive the scan code for such a scan, I'll be sure to pass it along to everyone. In the meantime, we'll take a look at the big percentage gainers on our SECL today:
ROKU continues its torrid pace of late, but here's a stock that hasn't run nearly as much lately and could set up for a continuing push higher:
AVLR:
AVLR appears to be breaking a downtrend after recently holding support near 63. Its PPO is also just crossing back into positive territory. AVLR is part of the software group ($DJUSSW) that has just broken out again. AVLR is a risky trade, but one that could result in a substantial rally into year end.
Active Trade Alerts
Here are comments on our two current active alerts:
ZUMZ (-0.26%) - earnings date is December 5th. ZUMZ traded intraday one penny beneath our revised CLOSING stop of 29.90 earlier, but it's since recovered 1.7% off that low.
ROST (-1.12%) - earnings date is November 21st. ROST is down today and it reports its quarterly results later this week. We won't hold our active trade alerts into earnings reports, so ROST will be coming off our list over the next couple days. Our raised stop is any CLOSE beneath the 20 day EMA, currently at 111.55. Also, consider taking profits on any move back up near 114 to the upside. Apparel retailers ($DJUSRA) are down close to 1% today, which is likely impacting our trade alerts.
Today's Movers
I looked at the movers on the S&P 500 and wanted to comment on a couple:
NFLX:
ABMD:
NFLX is one of the big S&P 500 winners today, while ABMD is among its losers. Both are downtrending relative to their peer groups, while their peer groups ($DJUSNS and $DJUSAM) have weakened on a relative basis in recent months. Can these two stocks return to favor? Well, NFLX leads to clear overhead resistance in the 305-310 range first and foremost. Even if it does, keep in mind that the S&P 500 is breaking out to fresh all-time highs every day. Just because NFLX breaks out doesn't mean that it will be a leader in its group. I'd need to see improving relative strength.
ABMD gapped higher on heavy volume recently, so this pullback could create a short-term trading opportunity if 189.16 (gap support) is tested. It also has not performed well on a relative basis so if I were to trade either ABMD or NFLX, I'd keep very tight stops in place.
Earnings Reports
Here are the key earnings reports for this week, featuring stocks with market caps of more than $5 billion. I also include a few select companies with market caps below $5 billion. Finally, any portfolio stocks (or active trade alerts) that will be reporting results are highlighted in BOLD. Please make sure you check for earnings dates for any companies you own or are considering owning:
Monday, November 18:
ZTO, WWD. Others less than $5 bil: None
Tuesday, November 19:
HD, MDT, TJX, TDG, PAGS, ARMK, KSS, WUBA. Others less than $5 bil: URBN
Wednesday, November 20:
LOW, TGT, PDD, NTES, CPRT, SQM. Others less than $5 bil: LB, NUAN, JACK, LZB
Thursday, November 21:
INTU, ROST (active trade alert), SPLK, STNE, POST, GPS, PLAN, JWN, WSM, BERY, PSTG, M. Others less than $5 bil: BJ
Friday, November 22:
SJM. Others less than $5 bil: FL, BKE
Economic Reports
November housing market index: 70 (actual) vs. 71 (estimate)
Happy trading!
Tom