EB Daily Market Report - Monday, December 9, 2019
Executive Market Summary
- There are no economic reports today and this week can be troublesome historically
- The Federal Reserve begins a two-day meeting tomorrow; expect no change to the fed funds rate
- European markets are fractionally lower and not helping
- Currently U.S. stocks are near the unchanged level with the 10 year treasury yield ($TNX) down to 1.82%
- Consumer discretionary (XLY) and energy (XLE) are atop the sector leaderboard; healthcare (XLV) and technology (XLK) are lagging
- Home Depot (HD) is the leading Dow component, while Apple (AAPL) is the laggard, falling from an all-time closing high on Friday
- Our alert TPX is flat today
Market Outlook
The Dow Jones monthly chart might appear as though it was tremendously overbought back in January 2018....and it was. But I'm telling you that during secular bull markets, overbought conditions can become much more extreme and last longer than you could possibly imagine. First, let's look at the Dow's monthly chart for the past 15 years:
January 2018 was CRAZY overbought, right? And volume has been extraordinarily light, correct? That's what the naysayers will tell you. First of all, let me say that yes the Dow was overbought on a monthly basis in secular bear market terms. That's what we're comparing to primarily on this 15 year chart. Monthly PPOs aren't going to go to extreme highs in a secular bear market. As far as volume goes, the prices of many Dow Jones component stocks have doubled or tripled, so think in terms of DOLLAR volume, not share volume. That's always a problem when you look at a long-term chart. If you looked at AAPL's 30 year chart, you'd have given up on it many, many years ago. Don't make those mistakes.
Think I'm kidding? Check out AAPL's long-term monthly chart:
When the subject comes up at your upcoming holiday party, remind everyone that share volume takes a back seat to dollar volume. :-)
Ok, so let's get back to the Dow Jones. Check out how extended the PPO can become in a secular bull market:
The last secular bull market took place between those two blue-dotted vertical lines. Monthly momentum remains above zero during such bullish markets. We saw the monthly PPO hit close to 15 on two different occasions and a monthly PPO at 5 or below generally is a major buy signal. We're currently at 5. Don't be swayed by the talking heads and those trying to scare you out of your positions. I firmly believe we have a decade of generationally-strong gains in front of us. Our focus shouldn't be on whether to invest, but rather WHAT to invest IN.
Sector/Industry Focus
Healthcare (XLV) has been the best performing sector over the past 3 months, gaining 11.29%, edging both financials (XLF) and technology (XLK). But what's really valuable knowledge is knowing that small cap healthcare (PSCH) is being favored once again. The following chart shows the absolute breakout in the PSCH and also a possible relative breakout vs. its larger cap counterparts:
It only takes a glance back to 2018 to realize how quickly small cap healthcare stocks can move when the market environment is conducive. That type of move very well could be underway now.
Active Trade Alerts
We have one active trade alert currently:
TPX (+0.06%) - reports earnings on February 12. TPX is flat today on light volume thus far. A close above 87 is what we want to see from a bullish perspective. To the downside, holding the now-rising 20 day EMA would provide confirmation that a new uptrend could be unfolding.
Strong Earnings ChartList (SECL)
I promised in my ChartWatchers article over the weekend to provide 5 trading candidates in today's DMR. They all come from the SECL - here you go:
ODP:
Volume trends here have turned quite positive and recent selling has taken ODP back to its gap and price support zone. (Disclosure: I own shares of ODP)
GNTX:
A nice bull wedge has formed on GNTX as it approaches both price and trendline support, in the 27.50-28.00 range.
CALX:
7.35-7.40 has been a key pivot area on the chart of CALX throughout 2019. It now represents support, so the best reward to risk entry is at this level.
LMT:
LMT is currently in a handle of a bullish cup with handle continuation pattern. It's been a leader among defense stocks ($DJUSDN) throughout 2019 and as it falls back toward its key moving averages, it simply improves the reward to risk. A breakout above cup resistance would eventually measure to roughly 430.
MX:
This one is volatile, but all the selling the past 5-6 weeks is setting up a very nice reward to risk trade. Volume trends are excellent and a break above the recent downtrend line could trigger the next rally. (Disclosure: I own shares of MX)
Movers & Shakers
Here are stocks with unusually heavy volume during the first hour of trading today (already 50% of normal daily volume over past 60 days):
THO:
I spoke about THO on my 9am show, Trading Places LIVE, this morning. They reported better-than-expected EPS (by a mile), but looked to open down on the news. I mentioned a trip back down close to 65 would represent an opportunity. 62-63 would be the best reward to risk entry area. After gapping down at the opening bell and quickly retreating to 65, THO rebounded and nearly touched price resistance just above 70.
EW:
EW has fallen 12 bucks over the past 2+ days to test its 50 day SMA, an important level given the negative divergence that had printed in mid-December. I'm fine with selling down to the 230-235 support area. Beyond that would require further evaluation.
DHR:
The volume accompanying this latest advance has been tremendous and makes the recent breakout more impressive.
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, December 9:
MTN, CHWY, MDB, CASY, TOL. Others below $5 bil: THO, SFIX
Tuesday, December 10:
AZO, HDS. Others below $5 bil: OLLI, CMD, PLAY
Wednesday, December 11:
LULU, NDSN. Others below $5 bil: AEO, OXM, PLCE
Thursday, December 12:
ORCL, ADBE, COST, AVGO, CIEN. Others below $5 bil: None
Friday, December 13:
None
Economic Reports
None
Happy trading!
Tom