EB Daily Market Report - Monday, April 20, 2020
Event Today
Our quarterly earnings-related events get underway this afternoon at 4:30pm EST. It'll be our first look into companies that have already reported their results, while also looking ahead at companies on deck to report. We'll look to uncover stocks that are more likely to either gap up or down based on the combination of their relative strength, technical patterns, and accumulation/distribution lines. The room will open up at least 30 minutes prior to the start of the event, so signing in any time after 4pm EST should work. Here's the link to the room:
Executive Market Summary
- Futures were very weak this morning after crude oil futures contracts ($WTIC) fell 51%, testing levels of 1986
- The 10 year treasury yield ($TNX) is down 2 basis points to 0.64%, offering little help to financials (XLF, -0.63%)
- Real estate (XLRE, -1.80%) and utilities (XLU, -1.78%) are the primary laggards today
- Familiar sectors lead again - healthcare (XLV, +0.49%), communication services (XLC, +0.12%), and technology (XLK, -0.26%)
- The German DAX ($DAX) was down earlier, but has reversed into positive territory, aiding US stocks as well
- Earnings reports will accelerate in the next two weeks; 6 of our portfolio stocks will be reporting this week - (Tues) KO, CMG, (Wed) LRCX, GGG, (Thur) PHM (Fri) IPG
- The best performing industry groups since the February 19th top are leading again today
- We have no active trade alerts at this time
Market Outlook
We saw a very different market on Friday as beaten-down areas led the market's rise, while recent strength took the day off. There were two possible reasons to explain the sudden change. First, we had options expiring so stocks that had been relative weak were subject to a potential rise to offset net in-the-money put premium. Strong groups and strong stocks, on the other hand, had net in-the-money call premium and those areas really struggled on Friday. But that was just one reason for the possible change in sentiment. Thursday, after the bell, Gilead Sciences (GILD) reported that its Remdesivir drug, used to treat Ebola patients, might be effective in treating COVID-19 patients. Apparently, a study was conducted in a Chicago-area hospital where patients with severe symptoms were treated with Remdesivir and there was significant overall improvement by those patients. So was Friday suggesting a possible game-changer with this new drug? Would companies benefiting from social distancing and stay-at-home orders suddenly begin reversing and trading lower? Well, I wanted to see what happens this week and really over the next few weeks to determine whether this is an event that requires a trading strategy change. Early results are in today and we're back to trading just as we were before Friday. Here are the top industry groups today from our Relative Strength Industry Groups ChartList (RSICL), which can be downloaded into your StockCharts.com account, IF you're at least an Extra member at StockCharts.com AND you're an annual member at EarningsBeats.com:
That's roughly the top 20% of all industry groups today. There are a lot of familiar names. Biotechs ($DJUSBT), specialty retail ($DJUSRS), telecommunications equipment ($DJUSCT), broadline retail ($DJUSRB), etc. Based on what I'm seeing today, don't change a thing in terms of which areas of the market to trade.
Also, it's like Groundhog Day when it comes to gap downs, followed by intraday strength. The Dow Jones was poised to open down 500 points based on ugly futures. It did open considerably lower, but is well off those earlier lows. The NASDAQ, true to its outperforming bias, was trading slightly higher at last check. It opened more than 1% lower, but buyers emerged again on early weakness.
I do want to keep pointing out, however, that we are currently positioned in the midst of what typically is a very weak historical time of the calendar month. The 19th to 25th has proven to be a very difficult period for U.S. stocks. It doesn't mean we go down during this period every month. It's simply a historical indication that we could see a period of weakness.
Trading Ideas
Keep looking at morning weakness to buy Strong AD ChartList stocks. 22 of 354 (6.21%) Strong AD ChartList stocks are down more than 3% today. 92 of 250 (36.8%) Weak AD ChartList stocks are down more than 3%. That's a HUGE disparity and continues to suggest that our Strong AD ChartList is a solid group of stocks to consider trading from a long perspective, while the Weak AD ChartList makes much more sense from a shorting perspective.
EVER, a stock I've discussed a few times recently, was down at the open today, touching 32.05. At last check, it was 34.87. At its low, it wasn't far from testing its rising 20 day EMA. On my Trading Places LIVE show this morning, I mentioned looking at Strong AD ChartList stocks that were down early and testing or approaching key technical levels. EVER is an example of that:
This chart shows price and gap support from roughly 31.00-32.25. EVER opened in that area today, which also came close to its 20 day EMA (not pictured above), currently at 31.30.
Another example would be a stock like LLNW. Today's early weakness triggered a low of 5.75, while its 20 day EMA is 5.77. LLNW is now trading at 6.33:
Many of these opportunities present themselves very early in the trading day. But the Strong AD ChartList should help you to uncover potential trade candidates.
Sometimes, you can buy and hold these stocks for swing trades as well. HZNP and TDOC were stocks that were provided in DMRs two weeks ago. Check out their charts now:
HZNP:
Note the brief selling and congestion on the chart. But then look at the AD line that continued rising. Now the stock is 10% higher.
TDOC:
The AD line was rising despite two equal lows near 135. TDOC has risen more than 30% since that time.
Hopefully, seeing this type of behavior will aid you in uncovering future great trades. Have confidence, but above all else, please make sure you keep stops in place. Not every trade will work like HZNP and TDOC.
Happy trading!
Tom