EB Daily Market Report - Monday, April 6, 2020

Tom Bowley - April 06, 2020

ChartLists Update

Strong Earnings ChartList:

I've added a new filter - the accumulation/distribution line. There's obviously some judgment involved on my part, but essentially the stocks on the SECL now are those that beat revenue and EPS estimates in their latest quarter, are liquid, show solid relative strength and appear to be favored by Wall Street in this current stressed environment with a rising accumulation/distribution line. Personally, I'll be trading off of this list, plus a new AD ChartList (see below) that focuses on high SCTRs and strong accumulation/distribution lines. In other words, strong quarterly results are not required to make this list. This SECL was updated over the weekend and is now available for download for all EB members, who are also at least Extra members at StockCharts.com. If you're not at least an Extra member at StockCharts, you can still view the list chart-by-chart. You just can't download it. When you're signed in at EB.com, simply click on "ChartLists" under "Members" on the left navigational panel.

AD ChartList:

This one is in process of construction. I'll be working on it this week and it will definitely be ready by our WAR Room session on Friday at 10am EST. If it's complete prior to that, I'll let you know and we'll have it on our website similar to the SECL - under "Members", click on "ChartLists" and you'll be able to find it there (later in the week).

Executive Market Summary

Futures were strong overnight and Wall Street saw a solid Monday open with major indices up 3-4%
The trajectory of new COVID-19 cases and deaths is showing signs of slowing globally, creating more optimism
Utilities (XLU, 7.09%), materials (XLB, +6.99%), and consumer discretionary (XLY, +6.04%) lead today
Consumer staples (XLP, +2.69%) and energy (XLE, +3.21%) lag
Crude oil prices ($WTIC) are lower by 7%, hurting the XLE's recovery attempt
The 10 year treasury yield ($TNX) is up 7 basis points to 0.66%
Overnight, we saw very strong action in Tokyo with the NIKKEI ($NIKK) up 4.24%; Hong Kong's Hang Seng Index ($HSI) rose 2.21%
Europe is trading considerably higher today as well with the German DAX ($DAX) higher by more than 5%
We have no active trade alerts at this time

Market Outlook

The S&P 500's rise today is certainly good news, especially since it's coming on a Monday. We've seen a few wicked Monday mornings in recent weeks, so it was a positive change to start a week out on solid footing. Nonetheless, there's still the same overhead resistance obstacles, despite the early week strength:

Please keep in mind that we haven't even moved into the first critical area of price resistance yet. If we do hit that red-shaded area and the VIX stubbornly refuses to fall much below 45, then I'd expect another drop lower, perhaps to test the recent low. Moving through this key area of resistance with the VIX continuing to fall into the 30s and 20s would tell me the worst is behind us.

The BIG TEST is staring us in the face.

Trading Ideas

Short Ideas:

I'd stick mostly with weak areas where stocks are gapping higher because the overall market is strong today. Here are two examples:

TSLA:

Autos have been awful and TSLA has struggled to clear its downtrending 20 day EMA. That would be the first sign to be careful on the short side. A much bigger resistance area, however, is from price resistance at 550 to the first key Fibonacci retracement level closer to 575.

MAR:

Hotels ($DJUSLG) are soaring today, but just remember this has been one of the worst groups so short-term strength will likely present additional opportunities to short just as the initial rally to the 20 day EMA showed in late-March. The accumulation/distribution line completely fell apart for MAR during last week's slide, so early strength could provide an opportunity. Gap resistance (70-75) and the declining 20 day EMA are the two key levels to watch.

Long Ideas:

From a long perspective, I've been successful trading solid stocks - those that are apparently being accumulated - in early morning trading when they trade down. Here are a couple healthcare stocks as examples:

HZNP:

Full Disclosure: I bought a small position in HZNP moments ago as it tested Friday's low. I'll be watching the rising 20 day EMA for support. HZNP is part of the pharma group ($DJUSPR), which has been one of the best industry groups over the past several weeks.

CTSO:

CTSO is a much more aggressive trade as we've seen the stock move from 3.60 to above 8.00, now back into the 6s....all during a brief 3 week period. So it's definitely not the type of trade you want if you're ultra conservative. Having said that, a quick 10% pop at any time wouldn't shock me.

These last two stocks came off of my healthcare ChartList. I am going to search through all of my sector ChartLists, identifying the best stocks within each sector (based on my judgment) and I'll consolidate all of those stocks into one "AD ChartList" that I'll make available to all EB.com members later this week. I'll also discuss the creation and strategy of trading these stocks during Friday's WAR Room session.

Happy trading!

Tom