EB Daily Market Report - Tuesday, March 24, 2020
Thanks For Your Feedback!
Thanks to all of you that sent me emails yesterday, discussing your shorting tendencies and strategies, and your comments on the short-term format changes in the DMR. It's very helpful as I consider educational products and the format of these products, like the DMR. From a very quick one day feedback perspective, I'd say that the majority of our members do not short and are most interested in protecting capital and identifying trades on the long side. I did hear from many of you, however, that indicated shorting is a part of your strategy when the market environment calls for it. I can tell you that I'm not a big fan of shorting, mostly because I know from all my historical work that the stock market goes up much more often than it goes down. Also, I'd feel more comfortable shorting if we were in a secular bear market, but I believe we remain, at least for now, in a secular bull market. Therefore, I won't plan to provide a lot of shorting opportunities. However, I did hear loud and clear that members, whether long or short, like information that suggests potential turning points on the charts, so much of my efforts in the coming days and weeks will be to identify those potential levels.
In an effort to provide you my initial thoughts on the subject of potential rally points, I will point you to an article that I just published this morning at StockCharts.com, "History Says To Consider This Resistance Level As A Potential Bounce Area".
Moving forward, my Trading Places LIVE shows at StockCharts TV will be pre-recorded on Tuesdays and Thursdays about an hour and a half before usual start time at 9am EST in order to accommodate StockCharts.com's production team that's out in the Seattle, WA area. They are in lock down mode due to the coronavirus and can only record, edit and then post recorded videos for now. So keep in mind that information shared on Tuesdays and Thursdays will be from roughly 7:30am EST. The Trading Places LIVE shows at EarningsBeats.com will continue to air LIVE at 9:00am EST.
One final thought. I see my role as Chief Market Strategist at EarningsBeats.com to provide education and knowledge. I've studied the stock market my entire professional life. While predicting day-to-day movements and which stocks might be the best short-term or long-term trades can be very difficult at best, there are many common traits of various market environments that can help us manage our short-term and long-term portfolios in a much more educated manner, providing us a lot more confidence to trade or invest. I don't trade like John Murphy, but I credit him with sharing his enormous amount of knowledge, especially with respect to intermarket analysis. He's provided that knowledge to many over the years and has always been an inspiration in my work. I'm simply paying it forward. So as we continue to march forward during these unprecedented times, please keep in mind what EarningsBeats.com truly strives to do and to be as a company - to educate and provide knowledge and to be a coach. We do not offer a software program with a green light and red light system that costs thousands of dollars and works if conditions remain exactly like they were in the previous year or two. Market conditions change and only the long-term history and knowledge of the market helps guide us through these uncertain times.
The next few months will not be easy. It's why, as a trader, I tend to sit a lot of it out. I know that I'll likely miss a lot of the short-term rallies, but the flip side is that I can avoid the disasters that we've routinely been waking up to.
Executive Market Summary
- Futures were lock limit up (about time!) as Congress wrestles with a stimulus package
- Italy showed a coronavirus reduction of both cases and deaths for a second straight day
- Global markets surged overnight in Asia and this morning in Europe, anywhere from 4-5% to 7-8%
- Many of the worst hit areas of the market are bouncing the most, which suggests this rally will likely be temporary
- Energy (XLE, +9.97%) and materials (XLB, +8.55%) are the leading sectors; consumer staples (XLP, +2.92%) trails
- Recreational services ($DJUSRQ, +19.66%) and airlines ($DJUSAR, +18.61%) are among the best performing industry groups
- Crude oil ($WTIC) is flat today, while the 10 year treasury yield ($TNX) is up 8 basis points to 0.85%
- We have no active trade alerts at this time
Market Outlook
One important piece of data that I'll be collecting during a rebound is watching the areas that have been most heavily hit during the past month. Those areas are seeing enormous gains today, on top of solid action yesterday. These groups created much of the fear....and now they're benefiting the most from an initial rebound. I sincerely doubt that cruise lines and airlines will the best industries to own during the balance of 2020. I could be wrong, but I just don't think we'll see anything other than a reactionary bounce. So let's look at the recreational services group ($DJUSRQ) to see where we might run into overhead resistance:
I see another possible 5-10% upside here, and then I'd be extremely careful with a group like this one. In the meantime, some of the advance in groups like DJUSRQ are being fueled by profit taking in much better longer-term opportunities. I cover those in the AD ChartList section next.
AD ChartList
Temporarily, I'm suspending looking at our Strong Earnings ChartList (SECL) for trading opportunities because, quite honestly, I don't believe Wall Street cares about last quarter's great earnings. This is a fear-driven market, not one that's rationally looking at key fundamentals. Trading inverse ETFs like the SH (SDS for 2x leverage) makes the most sense for those in the bearish camp. I'd probably still hold off on shorting until we see more of a bounce toward the key Fibonacci retracement level that I discussed in my Trading Places blog article from this morning. It will take patience. If you're short on patience, then I'd consider very slowly building a position. I can tell you that, for me, trading on the short side is particularly painful if I'm wrong. My brain is trained to realize that losing money during a down market is "ok", but emotionally I struggle with losing money when the market is rallying.
From a long perspective, some companies that have benefited significantly from what I like to call a "paradigm shift" in our future are pulling back or are likely to pull back as money rotates into the badly beaten up companies like those in the cruise line, airlines, hotels, gambling, home construction industries, etc. during this bounce. Here are two to keep on your radar:
ZM:
ZM is not on our AD ChartList because inclusion requires a SCTR score of at least 80. Currently, ZM has not been assigned a SCTR at StockCharts.com. I can guarantee you, however, that ZM's SCTR would be among the best relative to its peers. I'd use weakness to accumulate.
BJ:
Many stocks that soared into the middle part of last week like BJ are pulling back now while the recent primary laggards take center stage during the rebound. I suspect we haven't heard the last from companies like BJ with the coronavirus scare only to increase here in the US over the next few weeks.
APRN:
APRN is similar to ZM. There is no SCTR score so it wasn't included in our AD ChartList. But the accumulation distribution is really what I look for. Soaring accumulation on very strong volume, followed by profit taking. If we get another scare over the next couple days to weeks, which I would expect we will, don't forget about the stocks that benefited during that initial scare. They could very easily come roaring back.
These individual stocks carry a TON of risk. The Volatility Index ($VIX), while well off its recent high, is still at nearly 56, an extreme reading throughout history.....so ANYTHING goes! I can try to rationally determine where the market is heading and which groups will benefit or lag, but market behavior with a VIX near 56 is completely irrational.
Consider your risk tolerance before investing and remember: You don't need to own a boatload of anything when the market is this volatile. Always keep one eye (maybe 1 1/2 eyes) on capital preservation. I would MUCH, MUCH rather trade a boring market with a VIX at 10.
Happy trading!
Tom