EB Daily Market Report - Thursday, March 26, 2020
Executive Market Summary
- Futures fluctuated overnight and this morning, but we did manage to open higher despite record initial jobless claims
- Initial jobless claims skyrocketed to an almost unimaginable 3.28 million, well above consensus estimates of 1.00 million
- Our major indices have challenged yesterday's high with both the SPY and DIA exceeding those highs - a signal that our short-term uptrend remains intact
- Relative weakness in the QQQ this week suggests to me that we'll more than likely have another bout of selling ahead
- The Volatility Index ($VIX) is down nearly 7% today, but still at a very high 60 level, suggestive of impulsive selling at any time
- Leadership today is coming from defensive sectors like utilities (XLU, +4.25%) and real estate (XLRE, +4.19%)
- The 10 year treasury yield is down 7 basis points to 0.79%; watch yield support near 0.70% as a break below could signal another rush to treasuries
- We're in the "rubber band bounce back" phase of this market cycle
- We have no active trade alerts at this time
Market Outlook
Let's first get an update on where the S&P 500 stands with respect to key Fibonacci retracement levels:
We're getting closer to potential pivot points that we'll need to watch for. I expect that the downtrend will resume (or at least more of a basing period will begin) once the area from 2650-2800 has been tested.
Check out this leaderboard on S&P 500 stocks. It's ranked from worst to best over the course of the past week, while we've been rebounding. I'm paying particularly close attention to those stocks that have strong SCTRs, but have not performed well this last week as tortured areas have rebounded. I actually believe trading these one week laggards with strong SCTRs could offer up the best reward to risk scenarios. These are the types of stocks I'm looking at now. Here's the leaderboard of one week laggards:
It's not that rebounding stocks cannot rebound further, but those stocks are currently in favor. I wouldn't want to be the last buyer when they ultimately begin rolling over. Instead, I'd rather consider "safer" stocks that surged early on in this crisis and have been routinely ignored this past week. Check out Clorox (CLX), Kroger (KR), Walgreens Boots Alliance (WBA), and Regeneron Pharma (REGN) below as examples.
Trading Ideas
I've discussed Clorox (CLX) on a few occasions recently, so let me show you how I'm tracking this one. First, look at the 1 month houly chart:
It was strong this morning, but has pulled back in the last hour.
Next, look at how it appears to be breaking its recent downtrend on a 10 day, 10 minute chart:
If we consider this type of trading behavior for defensive stocks, there are others that fit the bill. For instance, Kroger (KR) looks interesting. Here's the daily chart showing that price support is being tested:
26.50-28.00 is a key price support zone. Being able to pick up a stock like KR at recent lows given its much higher demand of late would seem to make sense.
How about WBA? Here's the latest chart here:
While its price has returned back to support at 41, check out its accumulation distribution line, which has been rising. Looks to me like accumulation is taking place.
Finally, let's check out REGN, which clearly shows key price support in the 420s:
I understand everyone's trading style is different and that the above charts may not be appealing to some. Keep in mind that these particular trading ideas are designed to help keep risks low. There are plenty of stocks out there that could rise a lot more than the above, but I believe the risks are much higher as well.
For me, I want to keep trading risks as low as possible.
Happy trading!
Tom