EB Daily Market Report - Thursday, February 6, 2020
Executive Market Summary
- Equities have been back and forth today, but most of our indices are higher; small and mid caps lag
- The 10 year treasury yield ($TNX) is flat as both bond and stock traders await tomorrow's nonfarm payrolls report
- Communication services (XLC, +1.33%) and technology (XLK, +0.63%) are the two leading sectors
- Alphabet (GOOGL, +1.89%) and Twitter (TWTR, +17.42%) are aiding the internet industry ($DJUSNS)
- Becton Dickinson (BDX, -10.09%) leads the S&P 500 to the downside after reporting earnings
- We currently have no active trade alerts
Market Outlook
It's been well-documented that small caps ($SML) have not been a very good performer relative to the benchmark S&P 500. However, the SML is in a nice uptrend and I believe it's only a matter of time before relative strength returns. Last week, it appeared as if intermediate-term price support and the 20 week EMA might be lost, but this week's recovery has been very comforting in that regard. Check out this week's recovery:
While small caps may currently be underperforming, not every area of the market can lead. So that's not a huge deal. But what IS important is that small caps participate in the advance and this week's reversal looks very similar to the recovery in February 2018, when it appeared the SML was losing 20 week EMA support. It bounced right back then and it's doing the same now.
Sector/Industry Focus
Computer services ($DJUSDV), a group I don't discuss very often, has broken out above key short-term price resistance, due in large part to IBM, which has been on fire since naming its new CEO Arvind Krishna. Mr. Krishna previously served as IBM's Sr. Vice President, in charge of IBM's cloud computing strategy. The strength in IBM shares (discussed further in the SECL section below) has aided the following industry breakout:
It was easy to ignore both IBM and the DJUSDV for quite awhile, but this could be the industry group's game changer. I'll be watching to see if this short-term strength is sustained.
Active Trade Alerts
Currently, we have no active trade alerts.
Strong Earnings ChartList (SECL)
I ran a high volume scan against the SECL this morning, looking for companies that have traded at least 1/2 their normal daily trading volume by 11am EST. These were the 7 stocks returned:
CDLX, IBM, ICUI, LK, NUAN, PRSP, SAFM
Of these 7, here are three charts that look interesting technically:
CDLX:
CDLX has been an outstanding performer in our Aggressive portfolio and it appears to be in breakout mode once again today. Unless we see a big reversal this afternoon, I'd expect to see CDLX continuing to lead the internet group ($DJUSNS) higher.
IBM:
IBM changed leadership recently, and apparently Wall Street is agreeing with the move. IBM's move the last 5 days is unbelievable, especially when you consider that IBM still trades below the high it set near 170 in 2013. A breakout above 170 would be a very positive technical signal for Big Blue.
SAFM:
SAFM has been in freefall mode and it's clearly been an underperformer in the food products area ($DJUSFP), but it's attempting to at least put a short-term halt to its rapid decline with a possible hammer/doji today. The low hit a significant price support level. Given its relative weakness, I would definitely want that price support to hold.
Movers & Shakers
Here are a couple names in the news today, moving in opposite directions after earnings were reported:
TWTR:
Earnings weren't great, to be quite honest, but traders are concentrating on user numbers and that came in well above estimates. Technically, TWTR is obviously seeing a great reaction to its report, but its first big resistance level is just below 39, which is what it's testing now.
ABMD:
ABMD has been an abysmal stock, downtrending on both an actual basis and an absolute basis. It also is currently in a very bearish descending triangle pattern. These patterns typically break in the direction of the prior uptrend, which is down. It would seem only a matter of time before we see a price breakdown beneath 158 or so. Personally, I avoid shorting any stocks in a secular bull market, however, so I'd simply avoid ABMD.
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:
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
Initial jobless claims: 202,000 (actual) vs. 215,000 (estimate)
Q4 productivity: 1.4% (actual) vs. 1.5% (estimate)
Happy trading!
Tom