EB Daily Market Report - Friday, January 31, 2020

Executive Market Summary

• Global markets are under pressure as coronavirus fears accelerate
• Crude oil ($WTIC) lost another 1.44% and now trades at $51.39 per barrel
• The 10 year treasury yield ($TNX) is down 2 more basis points to 1.54%
• Volatility ($VIX) hit its highest level (19) since this 3-4 month equity rally began
• With the VIX soaring, it's likely that we're nearing an important short-term low
• Amazon.com (AMZN) blew away earnings (6.47 vs 3.98), leading consumer discretionary higher
• We currently have no active trade alerts

Market Outlook

You wouldn't know it today, but the 31st day of a calendar month typically starts a very bullish 3 day period. Since 1950, the 31st through the 2nd period represents the three best consecutive day period of the calendar month (all calendar months cumulatively). The reason? Hedge fund managers, portfolio managers, and institutional investors typically buy ahead of the money flows that come into the market at the beginning of every month. It's a legal form of frontrunning, in my view. Unfortunately, the stock market reached a key high with extreme bullish sentiment readings and was in need of a break. We're seeing that now. Furthermore, the 1st and 2nd calendar days this month fall on Saturday and Sunday, so we'll have to wait to see if money flows push the market higher the beginning of next week.

Sector/Industry Focus

Consumer discretionary (XLY) is the only sector in positive territory today:

There's one reason why. Amazon.com (AMZN). AMZN reported stellar results last night after the bell and AMZN accounts for more than 23% of the sector ETF. Its performance had been holding back the XLY and now its strong results are bolstering it.

Active Trade Alerts

We have no active alerts right now. I like several of the semiconductors right now, but given the uncertainty of the short-term market action, I'm holding off. If you want to take a chance or two, you might consider either TER or QRVO, both of which are highlighted below.

Strong Earnings ChartList (SECL)

Our SECL is currently at 129 charts, but that will see a big increase over the next few weeks as hundreds of companies report results. Many companies that have reported big numbers have seen gaps higher, followed by quick, brutal selloffs. Two such stocks on our SECL right now are Teradyne (TER) and Qorvo (QRVO). They're two perfect examples of "buy on rumor, sell on news".

TER:

TER is a very solid stock among semiconductors, but the entire group is being sold right now. There was a ton of interest in the group heading into earnings, but most of these companies are selling off right after their earnings are released.

QRVO:

The last breakout in QRVO came at the 105 level, which we tested earlier today. This has been a leader in the semis, so I'd look for a swift recovery. But how much further short-term selling might we have to withstand first? If I bought either TER or QRVO at current levels (and I could definitely make a case for that), I'd keep a tight closing stop at those initial support levels.

Movers & Shakers

I want to simply re-post the two homebuilding charts I discussed yesterday. BZH was breaking out on light volume and MDC had a monstrous bearish engulfing candle in place. Relative strength wasn't particularly good on either one. I realize the stock market is struggling today, but these two stocks are both getting hammered today:

BZH:

BZH reported its quarterly results after the bell yesterday and came up short of expectations. That helps to explain the lack of volume on Thursday, as well as the recent relative weakness.

MDC:

A recovery later this afternoon that holds the 20 day EMA could provide a lift to MDC. Otherwise, we're seeing a fairly significant breakdown one day after printing that very bearish engulfing candle. Lagging relative strength was once again very important in staying away from a stock breaking out in an otherwise strong industry group.

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 31:

XOM, CVX, HON, CHTR, CAT, CL, ITW, AON, PSX, JCI, LYB, IDXX, WY, IMO, CHD, KKR, BR, PSXP, BAH. Others less than $10 bil: GNTX, BERY, MAN

Monday, February 3:

GOOGL, SYY, NXPI, IX, HIG, ARE, CHKP. Others less than $10 bil: ON, CTLT, ACM

Economic Reports

December personal income: +0.2% (actual) vs. +0.3% (estimate)

December personal spending: +0.3% (actual) vs. +0.3% (estimate)

January Chicago PMI: 42.9 (actual) vs. 48.5 (estimate)

January consumer sentiment: 99.8 (actual) vs. 99.1 (estimate)

Happy trading!

Tom