EB Daily Market Report - Friday, January 24, 2020
Executive Market Summary
- Our major indices gapped higher today on the heels of strong earnings from Intel (INTC) and American Express (AXP)
- We've been selling since that open, however, with small caps once again lagging badly
- The flight to safety continues as the 10 year treasury yield ($TNX) drops another 5 basis points to 1.69%
- Utilities (XLU) and real estate (XLRE) are 2 of the 3 sectors in positive territory
- The Volatility Index ($VIX) is up more than 10% and at a 2 week high
- We currently have no active trade alerts
Market Outlook
I've been waiting and waiting for small cap stocks to regain the upper hand against large caps. So far, however, it's just not happening. We've breached the recent relative bottom and are currently setting a new relative low, the lowest level in the past decade:
The only period of longer small cap underperformance occurred in 2006/2007 when small caps underperformed for close to two years, but when that period of small cap outperformance occurred, it was fast and furious. I expect the same scenario will unfold sometime during 2020, but when?
Sector/Industry Focus
Biotechs ($DJUSBT) are putting pressure on healthcare (XLV), today's weakest sector. The pullback from the recent test at 2200 shouldn't be a complete shock. This is a group that's been unable to clear this important level on multiple occasions the past 4-5 years. I believe we'll see it cleared in 2020, but we do need to see it first. Here's the weekly chart, highlighting the upcoming 20 week EMA test:
The weekly PPO is very strong here. If this is truly THE uptrend that eventually breaks through 2200, I'd like to see the 20 week EMA hold as support. If we move below the 20 week EMA, it's simply a signal that the 4-5 year consolidation remains in play and this is NOT likely the breakout move that we're looking for.
Active Trade Alerts
We have no active alerts right now.
Strong Earnings ChartList (SECL)
I looked at SECL stocks with unusually heavy volume today and found the following charts interesting:
SWKS:
This is a really good stock to discuss for a couple reasons. First, SWKS just reported quarterly results that beat both revenue and EPS estimates, causing the spike in volume. Second, the reaction to this good news is a drop in price (Broadcom, a competitor announced a deal with Apple). Third, note the negative divergence in play. There is no doubt that I'll include SWKS in the Strong Earnings ChartList going forward because it remains a very solid company in a strong group (semiconductors). I would use short-term weakness as an opportunity for a trade down the road.
AMGN:
I just highlighted AMGN a couple days ago, thinking the negative divergence would play out to the 50 day SMA. The breakdown today should be respected because of the heavier volume. I'd now be looking for a move potentially down to the 220 area as that would mark a potential channel bottom. The biotechs ($DJUSBT) are having a very rough day, adding to the onslaught of selling.
Movers & Shakers
INTC and AXP are among the S&P 500 leaders after releasing their quarterly earnings results. Air Products & Chemicals (APD) is also in the Top 10 S&P 500 performers and it's at an interesting level:
This has the makings of a false breakout. Volume is still on the light to moderate side and the relative strength of commodity chemicals ($DJUSCC) just broke to a fresh 52 week low. APD is trying to buck the trend of its industry group, but a failure should be respected near-term. The positive here is that a failure could set a cup in place, with a potential handle falling back to test the rising 20 day EMA. That would likely represent a better reward to risk opportunity. Given the weak industry group, I'd normally view a trade like APD as a bit riskier than most. That's why I'd want to keep a tight stop in play.
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 (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:
Friday, January 24:
NEE, AXP, APD, ERIC, SYF. Others less than $10 bil: HRC, SNV
Monday, January 27:
DHI, S, ELS, ARNC, BRO, PKI. Others less than $10 bil: WHR, JNPR, FFIV, BYND
Economic Reports
January PMI composite flash: 53.1 (actual) vs. 52.3 (estimate)
Happy trading!
Tom