EB Daily Market Report - Wednesday, March 25, 2020
Executive Market Summary
- Futures were volatile, but U.S. equities opened relatively flat this morning
- Industrials (XLI, +3.15%) and real estate (XLRE, +3.00%) are leading today's action
- Communication services (XLC, -1.61%) and utilities (XLU, -0.90%) were the only two sectors in negative territory
- Aerospace ($DJUSAS, +10.95%) and airlines ($DJUSAR, +9.33%) are showing considerable strength
- Volatility ($VIX) is flat, but remains very high
- Gold (GLD) is down more than 1.5% today, while crude oil ($WTIC) has dropped close to 2%
- We have no active trade alerts at this time
Market Outlook
We remain in a short-term bounce phase. Until we're able to clear key Fibonacci retracement levels, I'd caution believing that our downside is limited, however. Another acceleration lower remains a distinct possibility. A better, more bullish scenario would be a further rebound to perhaps 2600-2650 on the S&P 500 followed by a bit more orderly pullback to recent lows over the next several weeks - all while the VIX remains distant from its earlier highs.
One encouraging sign has been the return to favor of consumer discretionary stocks (XLY) vs. the more defensive consumer staples group (XLP). Here's the visual in chart form:
Consumer discretionary stocks get hit when there's economic trouble ahead or when the market perceives economic trouble ahead. While our overall benchmark S&P 500 index hasn't really bounced all that much, the above ratio does at least tell me that perhaps we'll rebound a little quicker than many expect. It's just one signal, so I wouldn't rush out buying all consumer discretionary stocks, but I want to make sure I point out the positives and the negatives as we all search for the bottom.
Trading Ideas
I want to point out solid stocks in very strong industry groups from time to time in our DMRs as I feel much more confident trading these stocks as opposed to other stocks and industry groups that have been hit much harder. Those latter groups and stocks will likely see much more volatility in the weeks ahead, creating bigger opportunities to make money, but also bigger opportunities to lose it.
The following are simply stocks that have held up relatively well and are a part of industry groups that Wall Street currently favors:
VIPS:
VIPS is part of broadline retail ($DJUSRB), which has been the absolute best industry group over the past month of this crisis. Its accumulation distribution line is very strong and has been a great long trade candidate during pullbacks.
UPS:
UPS has printed a TON of hollow candles over the past few weeks. It's been gapping lower with the overall market, but buyers have jumped on it after the opening bell. Check out today's candle. It's already 4 dollars off its intraday low and that's been the norm for this stock throughout the crisis. Its industry group, delivery services ($DJUSAF) has been the second best industry group over the past month.
There's no guarantee to trading success right now, but I feel most comfortable putting my money to work in areas that Wall Street seems to be backing.
Happy trading!
Tom