EB Daily Market Report - Wednesday, January 8, 2020
Executive Market Summary
- Futures tumbled last night with news of multiple Iranian missile strikes in Irag targeting U.S. military
- By the time we opened this morning, however, futures were relatively flat as buyers were ready, willing, and able to support equity prices
- The December ADP employment report was very strong, as was the positive revision to November's report
- Our major indices are at session highs with the NASDAQ setting yet another record all-time high
- 10 of 11 sectors are higher as energy (XLE) is the only laggard; crude oil ($WTIC) is down 3%
- Our active trade alerts, VC and SBH, are both lower
Special Event
Mark your calendar for Monday, January 13, 2020 at 4:30pm for a webinar, "The January Effect and Top 15 Stocks for 2020". It will be an educational event where I'll share the strong correlation between U.S. stock market performance in January and subsequent performance during the balance of the year. It's quite remarkable and held perfectly true in 2019. Get a leg up on others by watching January 2020 performance to see what it's suggesting we might see during the balance of 2020.
Also, at Market Vision 2020, I unveiled my Top 15 Stocks for 2020. They were based solely on the fact that these companies have based for very long periods and have either (1) just broken out, or (2) are on the verge of breaking out. I'd like for all EarningsBeats.com members to have this information, so here are the ticker symbols of the 15 stocks (in alphabetical order):
BKNG, CERN, DIS, HOLX, KSU, LEG, PCAR, PPG, QRVO, RCL, SWKS, VRTX, XLNX, XRX, ZBH
I'll review these 15 charts during the Monday webinar. As always, we'll record the webinar for those who cannot attend the event live.
Market Outlook
Nothing seems to slow the market down. Not Iran. Not seasonal patterns. Not even bearish technical patterns like the topping head & shoulders formation that I highlighted on the S&P 500 hourly chart yesterday. One key to whether we consolidate recent gains or just continue to add to them will be the performance of transportation stocks ($TRAN). I discussed this today on Trading Places LIVE, so I wanted to provide this chart for those of you unable to attend my show this morning:
I discussed transports this morning, but small caps also are very important. We want to see both groups leading an S&P 500 rally. They've both begun to do so, but continued breakouts is what I want to see. If you see the TRAN and the SML both break to fresh 52 week highs, I wouldn't look for much selling in the S&P 500.
Sector/Industry Focus
We've seen the 10 year treasury yield ($TNX) pull back in recent weeks from 1.95% on December 19th to 1.76% on January 6th. It's taken a short-term toll on financials (XLF), although initial support at the rising 20 day EMA has held nicely. Today, the XLF is the leading sector. Here's the current chart:
There's nothing at all wrong with this action. In fact, it was to be expected after a huge run off the early-October low. I look for the TNX to rally higher again, possibly on Friday with the nonfarm payrolls report, and if it does, look for financials, more specifically banks ($DJUSBK), to be big beneficiaries.
Active Trade Alerts
It's really important that you understand the purpose of our Active Trade Alerts. For us, it's an educational process of how to use the Strong Earnings ChartList, which is essentially our revolving Watch List of trading candidates. We are not looking to provide 10 Active Trading Alerts to fill out a portfolio. It's designed to walk everyone through how I trade, from the start of the trade to either our target being hit (or other profit level being reached), or our stop being triggered. It's just as important to limit your losses as it is to profit from big gains. Every day in the DMR, i'll keep you fully up-to-date on our Active Trade Alerts so that you can sense what I'm feeling about these trades on a daily basis.
I want to be clear about one other thing. You don't have to agree with me. You may love the trades I feature here or you may hate them. If certain trades don't appeal to you, don't trade them. Again, I want to provide education on how I trade. You might want to follow my strategy or you may not. You might pick up one or two ideas and add them to your own personal trading strategy, which is great.
Given that backdrop....
We have two active alerts right now as follows:
VC (-0.35%) - reports earnings on February 19. VC triggered its 4th entry at 85.00 earlier today. We have one more entry here at 84.00 to fill out our position. It's frustrating at times to see a stock like this move lower while the market moves higher, but this is how market makers accumulate shares. The trade may not ultimately work, but our strategy of buying into weakness down to key support (in this case, gap support) helps to minimize risk.
SBH (-1.63%) - reports earnings on February 3. SBH also triggered its 4th of 5 buys at 16.95 this morning. The 5th entry of 16.78 missed by one penny, but we may see SBH revisit that level later today.
Strong Earnings ChartList (SECL)
We are updating our SECL, mostly deleting close to 100 companies that will likely report their latest quarterly earnings over the next 2-3 weeks. We will also add a dozen or so companies that recently reported strong revenue and EPS beats with promising technical outlooks. There will be 281 charts on the SECL after the changes are made. We will update this SECL again within the next two weeks, deleting many, many more companies set to report earnings and adding many of those early reporting companies that produced great results.
We have been working closely with StockCharts.com, who has developed an easier and more efficient way for us to share our SECL. Up until now, we've had to manually send each of you, who are also StockCharts.com Extra members or above, our SECL one member at a time. It's been very cumbersome and it also limits the number of times we've updated the SECL in the past. Every time we've updated the list, we've had to manually send out our SECL to each of you.
Moving forward (and probably later today, maybe tomorrow), you'll be provided a link to our SECL. You'll also be provided links to our four portfolios - Model, Aggressive, Income, and Value (I'm really excited about being able to easily share these portfolios with you as well!). Here is my understanding of how this should work.
- If you're a StockCharts Extra member or above, you'll be able to download these ChartLists into your own StockCharts account fully annotated.
- If your membership at StockCharts is less than EXTRA, you'll be able to view all the stocks in our linked ChartLists and download charts one at a time into your ChartList.
- If you're a non-member at StockCharts, you will only be able to view the charts. You MUST have an account at StockCharts to be able to save any of our annotated charts or ChartLists.
I WOULD STRONGLY RECOMMEND THAT YOU START A "FREE 30-DAY TRIAL" AT STOCKCHARTS TO FULLY EXPERIENCE THE VALUE OF OUR SERVICE AT EARNINGSBEATS.COM.
I am not marketing here. I am simply providing you facts. Our service is much more valuable, in my opinion, if you are a member to both StockCharts (Extra or above) and EarningsBeats.com.
One last thing. If you experience any problems with the links that we provide later, please, please, please contact us first at "[email protected]". This is a new feature at StockCharts to help us disseminate our work to our members. If there are issues, we'll manually send you the ChartList for now (as we've done in the past). If all of you have issues and contact StockCharts' customer support individually, their customer service support team will not be happy with me. SO PLEASE send us feedback and we'll get in touch with StockCharts to correct any issues.
Ok, back to SECL trading candidates:
CYBR:
Those blue circles say it all. CYBR is regaining absolute and relative strength and should be considered on a pullback as a trading opportunity.
VRTX:
VRTX is included in our Model portfolio and I'm on record plenty of times touting it as a leader for 2020. This latest breakout on an absolute and relative basis simply adds to the bullish case.
SIG:
The recent selling provides us a much better reward to risk opportunity to trade SIG. Recent highs near 22 would be our target, while using the support lines close to 18 as our closing stop.
BLDR:
BLDR is exactly what we look for at EarningsBeats.com. A company with excellent fundamentals and technicals. Check out those blue directional lines. So long as that continues, BLDR represents a great company to own. If BLDR were to close beneath its 50 day SMA, it might be time to re-evaluate the position. Until then, however, it's a strong buy.
Movers & Shakers
I ran a scan of all NYSE stocks, searching for companies that have already traded .5 times their average daily volumes as of 10:23am EST. I ignored stocks under $2 and stocks that average trading less than 200,000 shares daily. There were 9 stocks returned as follows:
RUBI, WAAS, DDD, TEN, MSM, PNM, LTHM, STZ, COT
Of these, MSM and STZ are earnings-related, but neither is breaking out or breaking down. Instead, I want to focus on three of the others as they are showing significant technical developments worth noting.
RUBI:
RUBI has been one of the hottest stocks in the market, but it reached a key price resistance level and is thus far reversing. I'd expect buyers to come back in sooner rather than later. I'd look for either a 20 day EMA test or a breakout.
TEN:
TEN has been a weak performer in a weak industry. Today's heavy volume is accompanying what could be the start of another leg lower as its short-term uptrend is breaking. Barring an afternoon reversal, this is the type of stock I'd have no interest in during a raging bull market. And even with a reversal, I'd only have a very short-term mindset if I were to trade TEN and I'd also have a very tight stop.
COT:
The soft drink group ($DJUSSD) has been very weak, especially on a relative basis to the S&P 500, but COT has bucked the trend and is breaking out today on both an absolute and a relative basis. It's become a leader, so if money begins rotating back into the DJUSSD, COT would be a big winner.
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:
Wednesday, January 8:
WBA, STZ, LEN, RPM. Others less than $5 bil: HELE, MSM, BBBY
Thursday, January 9:
SNX, AYI. Others less than $5 bil: KBH, SMPL
Friday, January 10:
INFY
Economic Reports
December ADP employment report: 202,000 (actual) vs. 157,000 (estimate)
Happy trading!
Tom