EB Daily Market Report - Tuesday, April 7, 2020
Executive Market Summary
- Futures were strong and our major indices gapped higher for a 2nd consecutive session
- The Volatility Index ($VIX), however, remains elevated and above 45, suggesting caution
- Energy (XLE, +6.88%) and materials (XLB, +4.72%) are the leading sectors
- Technology (XLK, +0.99%) and healthcare (XLV, +1.09%) are higher, but lagging other areas; keep in mind that I'm looking for the XLK and XLV to lead the market higher, not trail on solid up days - a red flag
- Earnings and economic reports are very light this week, perhaps aiding the market's rebound attempt
- The 10 year treasury yield ($TNX) is higher by 9 basis points to 0.76%; resistance will likely be felt in the 0.75%-0.80% range; a break above would be bullish for equities, while failure would be bearish
- We have no active trade alerts at this time
Market Outlook
I'm simply going to reprint the S&P 500 chart with Fibonacci retracement levels that I've been showing frequently. Can we negotiate these major levels? The 2650-2800 area is really important, in my view. Here's the current look:
The hourly PPO is back close to 2, where we saw a top in late-March. It's also a PPO level where we struggled during 2008 rebounds:
Those red arrows clearly derailed the bulls' efforts to revive the market in 2008, so we must pay attention in 2020. Historical price action does tend to repeat itself, despite the issues being different.
To the downside, I'd watch the rising 20 hour EMA, currently at 2605, along with price support near 2640. One final thing: The VIX, despite this morning's huge gap higher, is stubbornly remaining above 45. That's the VIX support level from 2008 as well.
Be careful, both longs and shorts.
Trading Ideas
The four trading ideas I gave yesterday fully illustrate why I have no interest in holding any stock overnight. During periods of high volatility, if stocks gap in the wrong direction, it's painful without any opportunity to manage losses with tight stops. HZNP was a great intraday trade, testing Friday's low (actually moving just fractionally beneath that low) and moving up 4-5% off that low in the afternoon. After a brief gap higher this morning, HZNP finds itself back down close to price support again. I'm not back in the stock, but 30.50-30.75 is a short-term price support zone for sure:
I have not re-entered, but it begins to grow tempting again if it approaches 30.50-30.75.
Meanwhile, the two shorting candidates that I suggested yesterday - TSLA and MAR - both have gapped higher the past 2-3 days, but neither can sustain gains intraday. These types of stocks remain solid shorting candidates on an intraday basis, but holding overnight presents a ton of risk - whether you're on the long or short side.
A couple strong relative strength stocks with favorable accumulation/distribution lines that are being hit today are:
TDOC:
Recent price support resides in the 135 area and this morning TDOC hit 138.20 from a recent high of more than 170. That presents opportunity for a short-term trade and both its relative strength and accumulation/distribution lines are very bullish.
RNG:
Like TDOC, RNG has been a solid relative performer and it's showing a very strong accumulation/distribution line. That means intraday weakness can present a trading opportunity. I have bought a small position in RNG today, looking for the 190-200 zone to hold as support, while realizing highs just a little more than a week ago were above 250.
The key for me is maintaining much smaller than normal positions so that sudden drops don't overwhelm me emotionally. Also, if I've got profits during the trading day, I take them. I feel much better owning nothing or almost nothing when I go to bed at night.
Happy trading!
Tom