EB Daily Market Report - May 6, 2020

Executive Market Summary

• Futures were higher this morning and lifted our key indices right out of the gate
• We've seen a divergence since the opening bell, however; NASDAQ shares have strengthened while the Dow Jones and S&P 500 have weakened
• April's ADP employment report showed a staggering 20.24 million jobs lost, slightly worse than the expected 20 million
• Technology (XLK), communication services (XLC), and healthcare (XLV) are 3 of the 4 leading sectors today; they also have the top 3 SCTR scores among sectors
• Utilities (XLU), energy (XLE), and financials (XLF) are weakest today
• The 10 year treasury yield ($TNX) is up 7 basis points to 0.73%, clearing its 20 day EMA for the first time since mid-March
• We have no active trade alerts at this time

Market Outlook

Stick with leaders. I can't be clearer about that. The QQQ (ETF that tracks the NASDAQ 100), home of mega-growers, is crushing the SPY (ETF that tracks the S&P 500). Why? Well, many of the weakest areas during this pandemic have little or no representation on the NASDAQ 100, but they're really hurting the performance of the SPY. In the Sector/Industry Focus below, I discuss the airlines. They've been awful and when you own the SPY, you own a piece of the worst performing group in U.S. equities. By "diversifying", you're being hurt by awful areas of the market. Check out the QQQ:SPY relative performance:

The companies comprising the NASDAQ 100, by and large, are companies that are growing their earnings through, and because of, this pandemic. Rapidly growing earnings in a historically low interest rate environment equals "melt up". This environment is not likely to change for awhile, so ignoring this and trying to diversify into airlines, several of which might not even be in business in a year or two, is a big, big mistake in my opinion.

Trade what is working, not what you hope will work.

Sector/Industry Focus

I would caution against trying to time a "value" trade on anything. Today, let me give you an example of perhaps the worst area of the U.S. stock market - airlines ($DJUSAR). While many folks simply cannot believe how much the S&P 500 has risen off the March 23rd bottom, groups like airlines are masking exactly how strong many industries within the S&P 500 have been. If it weren't for the weakest of the weak, we'd see the S&P 500 much closer to the February all-time high. Airlines, however, are breaking down again, threatening to close today at its worst level of 2020:

Barring a big reversal today, the DJUSAR is breaking down out of a very bearish descending triangle pattern. STAY AWAY.

Strong Earnings ChartList (SECL)

I ran a scan of SECL stocks that are testing their 20 day EMAs today. Here's the list:

JD's AD line has taken a tumble in recent weeks, so I'd avoid that one. Otherwise, this is a solid list. ZM and TDOC would both be solid choices, but my favorite at the current price is probably LDOS:

The AD line here remains very strong and LDOS appears to be channeling higher. Early weakness today seems like an opportunity.

Strong and Weak AD ChartLists

At 9:44am EST this morning, I looked at the weakest Strong AD charts to look for potential trade opportunities. Keep in mind that companies having strong AD lines are companies that tend to close in the upper half of their daily candles. That's how AD lines rise in the first place. So many times, companies that are weak in the morning will strengthen later in the day. Here was the top 12 underperformers in the Strong AD ChartList 15 minutes into today's trading action:

Here are 3 stocks on this list:

AGRX:

I am sorry to say that I didn't buy AGRX this morning. I looked at it and nearly pulled the trigger, but I tend to shy away from $2 stocks. It's up 11-12% from 3 hours ago. :-(

CATS:

I did buy CATS this morning after looking at the chart. First, price resistance is all the way back up above 31. We were nearing a key price support level at 20.50, so I bought half with the thinking that I'd buy the other half in the 20.50-21.00 area with a target of 31.00 and a closing stop around 20.00. So far it's reversing, but with only half a position - with I'm comfortable with.

RDWR:

I bought RDWR close to its current price. The AD line here is extremely bullish and RDWR shows very few large red-filled candles in its recent history. My target is back near 24, while I'll keep a tight stop below this morning's intraday low of 21.95.

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:

Wednesday, May 6:

NVO, PYPL, CVS, TMUS, SHOP, ZTS, EQIX, GPN, GOLD, WM, AEP, MET, GM, SQ, ES, FNV, MFC, ALXN, FMS, AVB, WCN, ANSS, AWK, NTR, WELL, RNG, WPM, IAC, FTS, FTNT, ESS, FOXA, CDW, TWLO, VMC, ALNY, VIV, PXD, AMP, KKR, BIO, EVRG, CVNA, MAA, INVH, ATO, KL, GDDY, DISCA, EXAS, EXR, CTL, GPC, J, UDR. Others less than $10 bil:  QGEN, LYFT, PTON, NBIX, SRPT, WYNN, CDAY, ETSY, AYX, ZNGA, AMED, QDEL, SEDG, WEN, GRUB, LVGO, WING, FIT

Thursday, May 7:

BMY, DHR, LIN, BUD, FIS, BDX, FISV, ENB, BKNG, RTX, UBER, EQNR, DLR, BCE, ABEV, XEL, MNST, CTSH, EOG, ED, MSI, BLL, OTIS, FLT, HLT, MCHP, TU, CTVA, CNQ, ABC, MRNA, MTD, ROKU, HES, GLPG, CBRE, TTD, DISH, PODD, PBA, EPAM, LNT, BAP, MGA, QRVO, MT, TEVA, IT. Others less than $10 bil:  QGEN, LYV, ZG, DBX, HST, ACAD, NET, GH, AVLR, OLED, CRL, PCTY, NWSA, NUAN, HLF, PWR, FSLR, IPHI, SRCL, AAXN, BILL, MNTA, APPN, STMP, HAIN, TDC, TRIP, JBLU, TGNA, RPD, YETI, SYNA, AAN, YELP

Economic Reports

April ADP employment report: -20.24 mil (actual) vs. -20.00 mil (estimate)

Happy trading!

Tom