EB Daily Market Report - Wednesday, April 8, 2020
Executive Market Summary
- Futures were mixed overnight, but U.S. indices did open up fractionally higher this morning
- A big reversing candle printed yesterday in the U.S., potentially marking a short-term top
- Real estate (XLRE, +1.69%) and energy (XLE, +1.50%) are among the early leaders today
- All 11 sectors were higher at 10:45am EST, but healthcare (XLV, +0.14%) lagged
- Home construction ($DJUSHB, +5.99%), gambling ($DJUSCA, +4.49%) and hotels ($DJUSLG, +4.44%), three of the worst performing industry groups since February 19th, are continuing to find buyers
- The 10 year treasury yield ($TNX) is flat today after opening higher today at 0.77%; a break above 0.80% is what the equity bulls would like to see
- Crude oil ($WTIC) is higher by 3% today, while gold ($GOLD) is fractionally higher after failing to close above $1700 per ounce yesterday
- We have no active trade alerts at this time
Market Outlook
Our short-term rally is being led mostly by the groups that were trounced during the initial meltdown, which totally makes sense. But if and when these groups roll over, I suspect our major indices will be tested. Mortgage REITs ($DJUSMR) and home construction ($DJUSHB) are two groups to watch closely. If they should begin to falter again (look for significant reversing candles), I expect the short-term selling pressure could accelerate. Here's a quick look at these two groups:
DJUSMR:
DJUSHB:
The DJUSHB is definitely the stronger index on a relative basis, but both have been serious problems for the overall stock market. If they fail to clear key overhead resistance levels - recent price resistance, 20 day EMAs, 38.2% Fib retracement levels, etc. - I would expect the next phase of selling will begin.
Also, keep an eye on the 10 year treasury yield ($TNX). To truly begin to repair all the technical damage inflicted throughout this crisis, we'll need to see a true rotation from the defensive treasuries to more aggressive equities. One way to see that unfold is for the TNX to rise and begin to trend above its 20 day EMA. In 2020, that's been problematic as the TNX has moved below its 20 day EMA and mostly remained there.
Trading Ideas
My short-term trading strategy has been to find solid relative performers (SCTRs > 90) with strong accumulation/distribution lines that are seeing weakness in the first part of the trading day, expecting them to rebound later in the day. As I went through my ChartLists, several names appeared in various sectors as follows:
Consumer Discretionary: TAL (96.8), VIPS (99.5)
Consumer Staples: SPTN (91.4)
Communication Services: CCOI (96.9), LLNW (98.5)
Technology: FN (92.4)
Financials: EHTH (96.2)
Industrials: ZTO (98.4)
Of these, EHTH is being crushed, but so far trying to hold price support as follows:
Volatility in EHTH is off the charts and I'd actually prefer a bit more selling to be able to enter closer to price support in the upper-80s, but a reversal from this area wouldn't be shocking at all if we consider that EHTH has been a benefactor of early day strength many times over the past 6-7 weeks.
I don't currently own any of the above stocks, but I did take a position in TDOC today. That one was discussed in yesterday's DMR. It moved into the 130s again today and given its strong accumulation/distribution line, I'm expecting a recovery today. We'll see.
Happy trading!
Tom