EB Daily Market Report - Wednesday, February 5, 2020
Executive Market Summary
- U.S. equities gapped higher, sold off, and are now regaining strength again
- Walt Disney (DIS) reported solid earnings, but trails only Merck (MRK) in terms of Dow Jones component performance
- The January ADP employment report came in at 291,000, nearly doubling consensus estimates
- The 10 year treasury yield ($TNX) is up another 5 basis points to 1.65%, fueling this latest equity rally
- Energy (XLE, +3.61%) is soaring; financials (XLF, +1.79%) are also strong
- Tesla (TSLA, -13.90%) printed a reversing doji on Tuesday and is under pressure today
- We currently have no active trade alerts
Market Outlook
I was looking for a quick correction and it might be over. 3-5% in a secular bull market can be enough to unwind the bullish sentiment readings. Remember the 5 day moving average of the equity only put call ratio ($CPCE) hitting .47, challenging century lows? Everyone was turning bullish, so the market needed something to reverse sentiment. Enter the coronavirus, which the media has fallen in love with. Now every tick higher or lower in the market is due to the coronavirus. The 5 day moving average of the CPCE moved back above .60 recently, nearing 3 month highs. It's crazy how even a slight equity pullback can completely alter the mentality of traders.
This bull market is about earnings growth in a historically-low interest rate environment, one in which inflationary pressures are DOWNWARD, holding the Fed at bay, possibly even leading to another rate cut or two in 2020. That would only make earnings growth that much more valuable.
As for the S&P 500, let's see if we can get the breakout:
If we see that breakout, we could be in for another relentless advance higher. In the meantime, the horizontal lines above mark both short-term price resistance and price support.
Sector/Industry Focus
Broadline retail ($DJUSBR) is on the verge of a major breakout, thanks in large part to the excellent earnings report from Amazon.com (AMZN) earlier this week. There's a very large ascending triangle that measures considerably higher, so AMZN should be in your plans as we move forward - in my opinion, of course. I also mention TGT below as well, because if the group pushes higher, TGT should be a beneficiary as well. Here's the pattern I'm talking about:
The measurement is nearly 700 points (top of triangle to first low), so that's likely to carry the DJUSRB to the 2800 area. Given the earnings acceleration in both AMZN and TGT, we could see that level hit later in 2020 or possibly 2021.
Active Trade Alerts
Currently, we have no active trade alerts.
I'm sure we'll have another active trade out shortly.
Strong Earnings ChartList (SECL)
I ran a scan of the SECL, specifically looking for stocks pulling back (RSI between 40-50). 21 of the 129 stocks on our SECL met this simple criteria. From there I wanted only to look at stocks within some of the best industry groups. So I whittled down the list to the following stocks:
A, COUP, CVET, HIBB, ISRG, MOMO, NKE, TGT, TSEM
These are the 3 that looked interesting to me technically:
A:
A has been weak lately, but the recent selling back beneath both the 20 day EMA and 50 day SMA actually tested a critical price support level, created by the breakout in December 2019.
HIBB:
HIBB has been struggling for the past 10 weeks or so, but that masks what was previously a very impressive uptrend. Fibonacci retracement levels are now coming into play. To the upside, we want to see a channel line break. Volume has been fairly light throughout much of this selling, so we could be witnessing accumulation as HIBB drifts lower.
TGT:
We tend to forget about the strength of stocks when they take time to consolidate. I believe that's the case with TGT. It retreated to fill its gap and has therefore been a very bad performer in 2020 thus far. I wouldn't be surprised to see that change from this point forward. I'd be concerned and would need to re-evaluate if TGT closed beneath 110. Otherwise, I look for it to resume both its absolute and relative strength.
Movers & Shakers
Here are two companies with big reactions to earnings reports just released:
BOOT:
I expected a solid quarterly report from BOOT as it's been one of the best apparel retail stocks ($DJUSRA). The report wasn't bad as BOOT beat both top and bottom line estimates, but it guided its Q4 EPS lower. It could just be a brief selling opportunity, so I will reserve judgment for a day or two. However, I do think BOOT needs to rally off its current level. I see a test of a channel with today's weakness, while relative strength has completely broken down. If channel support is lost, BOOT's chart turns much more bearish in my view.
MANH:
Unless we see a big reversal today, MANH appears heading to test key price and gap support at 73. Relative strength began trending lower in October, but MANH has been consolidating. After testing its 52 week high yesterday, it had an opportunity with earnings to break out on an absolute basis and begin a new relative strength uptrend. MANH did beat on its top and bottom lines, just as BOOT did, but its uninspiring guidance (in-line) seems to have emboldened sellers.
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:
Wednesday, February 5:
MRK, NVO, GSK, QCOM, BBD, BSX, SU, GM, MET, HUM, CTSH, ORLY, AVB, IFNNY, SPOT, DTE, FOXA, AME, IAC, PAYC, CINF, TWLO, BAP, YUMC, FMC, LNC, CDAY. Others less than $10 bil: PTON, NUAN, GRUB, FEYE, RAMP
Thursday, February 6:
PM, SNY, BMY, BDX, CI, SPGI, EL, UBER, ICE, ATVI, DASTY, BIDU, BCE, REGN, YUM, TSN, MSI, FLT, WLTW, FCAU, TWTR, FTV, VRSN, BLL, K, FTNT, CDW, MTD, SGEN, NLOK, IQ, ODFL, CAH, MT, XYL, TTWO, WYNN, ALNY, PINS, MPW. Others less than $10 bil: ZEN, SNA, DXC, TPR, DNKN, SKX, HBI, SYNA
Friday, February 7:
ABBV, HMC, CBOE, CNHI, AVTR. Others less than $10 bil: CAE, GOOS, CCJ
Economic Reports
January ADP employment report: 291,000 (actual) vs. 154,000 (estimate)
Happy trading!
Tom