EB Daily Market Report - Thursday, April 30, 2020
Executive Market Summary
- Futures were up on the heels of solid earnings reports in key technology names
- Facebook (FB), Microsoft (MSFT), and Tesla (TSLA) all opened higher after delivering results
- Economic reports came in below expectations, including initial jobless claims
- The 10 year treasury yield's ($TNX) reaction to the poor economic reports was to shed 3 basis points to 0.60%
- Communication services (XLC, +0.36%) is the only sector in positive territory at this time; weakness is seen in materials (XLB, -2.24%) and industrials (XLI, -2.24%)
- Autos ($DJUSAU, +3.53%) are getting a lift from TSLA's bullish earnings reaction
- Internet ($DJUSNS, +2.15%) is benefiting from FB's positive reaction
- We have no active trade alerts at this time
Market Outlook
We're seeing a return to strength in areas that are heavily represented on our Strong AD ChartList. Among today's leadership includes broadline retailers ($DJUSRB), internet ($DJUSNS), computer hardware ($DJUSCR), software ($DJUSSW), health care providers ($DJUSHP), and medical equipment ($DJUSAM). That latter group has broken above the early March reaction high, which adds more bullishness to this group in my opinion. Check out the chart:
I really like the strength of this group. The AD line shows excellent signs of accumulation throughout 2020 despite the pandemic and the PPO signals excellent momentum to the upside. Therefore, any pullback to test the rising 20 day EMA (green arrow) would suggest that medical equipment stocks on our Strong AD ChartList might make sense as short-term trades. I like them at current levels, but a further pullback would likely improve reward to risk opportunities. Here are the highest ranked medical equipment stocks on our Strong AD ChartList based on SCTR (StockCharts Technical Rank - relative strength tool) scores:
The top 10 in this space all have SCTR scores above the 90 percentile. Many are stretched and overbought currently, however, so a pullback would provide a better opportunity.
Sector/Industry Focus
I remain a big believer in healthcare stocks (XLV) overall. They've provided leadership throughout 2020 and remain one of the strongest sectors, if not THE strongest. The following is a 3 year weekly chart showing the XLV's relative strength vs. the benchmark S&P 500:
The paradigm shift to "stay at home" and "socially distance" had played perfectly into this sector's strength. As a result, we've seen a huge shift on Wall Street towards companies in the healthcare space, especially those that are leaders in their field. Keep this sector and its leaders on your radar for trading opportunities in the weeks and months ahead.
Strong Earnings ChartList (SECL)
I ran a scan at 10:00am EST, searching for stocks on our SECL that were showing higher than normal volume (40% of average daily volume in the first 30 minutes of trading). The following were the scan's results:
NEO, TDOC, TSG, ZM
I actually like all 4 stocks, but let's focus on NEO and ZM:
NEO:
NEO has been channeling higher since mid-March and its AD line has been very strong as well. I would be looking for a turn higher either here at the 20 day EMA or at the recent price low closer to 27.
ZM:
There haven't been too many stocks more volatile in both directions than ZM over the past two months. Volume has been off the charts and the overall trend has been higher. One strategy that has worked on ZM is to allow the selling to continue until we see a daily higher high print. That has seemed to work as a signal that the short-term downtrend is ending and another uptrend is resuming. I would look for support in the 125-135 range with the lower channel line adding additional support as well.
Strong and Weak AD ChartLists
I ran the same high volume scan against the Strong AD ChartList and the following 13 stocks were returned:
AZN, BSGM, GILD, HOLX, INOV, INSG, LIVX, MTSI, NOMD, NOW, PJT, SNDX, VSTM (NEO, TDOC, TSG, and ZM were also returned, but I covered those above in the SECL section). Here are two that look interesting:
INOV:
INOV has pulled back to test its rising 20 day EMA. Given the strong PPO and the rising AD line, I'd be looking for more buying off this 20 day EMA test.
INSG:
It's really important not to chase these stocks that go straight up. I know it's tempting, but the problem is that you have to give them a ton of room (risk) to the downside for normal 20 day EMA and/or price support tests. INSG shows a very bullish chart above, and the current downtrend will likely set up a nice trading opportunity. I'd use this weakness to build a position, but please understand this is a highly volatile stock not suited for those who are averse to risk. This is a very risky, highly volatile stock. But it also presents a very solid return potential. It's already fallen 20% off the recent price high, but there's more room down to the 20 day EMA and the support levels annotated. Consider using additional weakness to begin building a position here.
Earnings Reports
Here are the key earnings reports for today and tomorrow, featuring stocks with market caps of more than $10 billion. I also include a few select companies with market caps below $10 billion. Finally, any portfolio stocks (or active trade alerts) that will be reporting results are highlighted in BOLD. Beginning next week, I'll be placing an asterisk (*) next to stocks that are showing excellent relative strength and accumulation/distribution lines heading into their respective earnings report. In my judgment, I'd expect strong results and guidance, although correctly predicting which way a stock might gap after an earnings report is much more difficult. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. For this week's earnings reports, you should check out our "Q1 Earnings" webinar, where I detailed in two separate ChartLists those stocks where I'd look for good and bad quarterly earnings results. Please be sure to check for earnings dates for any companies you own or are considering owning:
Thursday, April 30:
AAPL, AMZN, V, CMCSA, RDS.A, AMGN, MCD, GILD, MO, SYK, CI, SO, ICE, MMC, MCO, BAX, ILMN, COP, KHC, ETN, PSA, BBD, DOW, SGEN, IDXX, TWTR, RMD, WLTW, K, EIX, FTV, NOK, TEAM, PH, CHD, SWK, ATUS, TFX, AJG, AEM, SSNC, IP, WDC, LNG, CXO, MOH, OTEX. Others less than $10 bil: TAP, COG, ZEN, MGM, PRGO, WHR, UAL, GNRC, DNKN, TNDM, AAL, BAND, FLWS
Friday, May 1:
XOM, CVX, ABBV, CHTR, HON, CL, EL, TRP, AON, PSX, CLX, JCI, LYB, WY, QSR, WPC, CBOE, IMO, PSXP. Others less than $10 bil: APO, HRC, NWL, CCJ, HUN, MINI
Economic Reports
Initial jobless claims: 3.84 mil (actual) vs. 3.50 mil (estimate)
March personal income: -2.0% (actual) vs. -1.1% (estimate)
March personal spending: -7.5% (actual) vs. -4.5% (estimate)
April Chicago PMI: 35.4 (actual) vs. 37.9 (estimate)
Happy trading!
Tom