EB Daily Market Report - Friday, May 8, 2020

Big Saturday Event

Mark your calendar for Saturday, May 9th at 2pm EST. That's when Grayson Roze and Bill Shelby will join the EarningsBeats.com community in our WebinAR (WAR) Room! Grayson and Bill will share their expertise in organizing ChartLists, managing ChartStyles, creating ChartStyle buttons (a superb short cut!), setting up scans (Bill is the creator of the scan engine at SC, so absolutely NO ONE knows scanning at SC like Bill), etc. I'll also be discussing our AD ChartLists and will unveil yet another ChartList - the ShortSqueeze ChartList - to track stocks that could be setting up for an explosive rally thanks to all of those that are betting against this market and, more specifically, certain stocks.

It should prove to be another great day of education at EarningsBeats.com! I hope you all can make it. We'll be sure to provide instructions before the event to make sure you can join us LIVE. If you have a prior commitment and can't make it, no worries! We'll be recording the event and we'll make sure it gets posted to our Webinar Archives.

Executive Market Summary

• Futures were strong again, resulting in yet another gap higher
• April nonfarm payrolls were a disaster, as predicted, with unemployment surging to 14.7%
• Small ($SML) and mid cap ($MID) stocks are leading today as weaker areas show leadership
• The 10 year treasury yield ($TNX) is attempting to clear its 20 day EMA again today, rising 4 basis points to 0.67%
• Crude oil ($WTIC) is up 3.3% to $24.30 per barrel
• Energy (XLE) is leading the market higher today, aided by the higher crude
• Technology (XLK) and health care (XLV), the two best performing sectors of 2020, are lagging today

Market Outlook

We are one week away from May options expiration. While it may be a bit premature to consider that calendar-spurred phenomenon, we definitely should not be shocked if a big selloff among NASDAQ stocks hits out of nowhere. I have to be honest and say I'm a little nervous about the lack of hollow candles during this latest push higher in stock prices. Check out the QQQ (ETF that tracks the NASDAQ 100 index):

This potentially could be a last short-term gasp at a move higher. I emphasize short-term. The fact that price action is moving higher, while the AD line rolls over concerns me. The opposite is what we saw in March that told us there was accumulation taking place under the surface despite lower prices. Well, it would be remiss to not recognize the lower AD line now with higher prices. We also know what options can do and there are a lot of stocks that have soared in the past 2-3 weeks. Be sure to check out options. If you own stocks with a TON of in-the-money calls and few in-the-money puts, buyer beware. I plan to raise more cash in the next few days ahead of options expiry. I believe the week after options expiration could present some excellent opportunities.

Sector/Industry Focus

New leadership has emerged and normally it can be seen by simply reviewing the sector summary page at StockCharts.com:

All 11 sectors are higher today, but note the bottom two - health care (XLV) and technology (XLK). Look at the SCTRs for each sector. Those with low SCTRs are leading today and those with high SCTRs are lagging. Clearly, we're seeing recent trends being flipped - at least in the near-term. You might want to rein in your technology and health care purchases a bit for now. If you do buy, perhaps do so with lesser shares and with a plan to exit in place quickly if the trade turns sour.

Strong Earnings ChartList (SECL)

I will try to update this ChartList soon as hundreds of companies have reported results the past 1-2 weeks. In the meantime, here's a chart that looks bullish:

TDOC:

The AD line has remained exceptionally strong, even during the recent drop in price. It certainly appears as though TDOC is being accumulated. Its relative strength vs. a bullish software group ($DJUSSW) has been very strong as well, though it's not shown on the chart above.

Strong and Weak AD ChartLists

Here are a couple of quick charts to point out:

WORK:

WORK has been one of my favorite stocks during this pandemic. We use WORK's product here at EarningsBeats.com and it makes our online collaboration much easier, so we would recommend the product. With more and more businesses gravitating to online collaboration tools, WORK seems to be very well positioned fundamentally. 11% of its float is short, meaning that today's breakout could be further magnified by short sellers needing to cover their positions. There's not much better than a breakout with guaranteed buyers waiting in the wings.

TGTX:

TGTX has nearly 15% of its float short and also just broke out. Check out the volume on the breakout. There's little doubt that short sellers' covering aided this huge advance.

I'll be devoting an entire segment in our Saturday WAR Room to the concept of short selling and primarily how that can aid those on the long side. I'm not a fan of shorting in a secular bull market and I believe it's being proven justified as the market continues to roll higher.

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:

Friday, May 8:

EXC, PPL, CARR, BR, NMR, BIP, VTR, IEP. Others less than $10 bil:  XRAY, PNW, LEA, SWCH, CRON, TWNK, BLMN

Monday, May 11:

MAR, ZBH, ET, EC, ETR, SPG, AEE, TME, IFF, DDOG, CAH, AMCR, CABO. Others less than $10 bil:  MYL, LOGI, TXG, G, CZR, ON, UAA, JCOM, COTY, AN, MIME, CDLX, NVAX, TLRY

Economic Reports

April nonfarm payrolls: -20.50 mil (actual) vs. -21.50 mil (estimate)

April private payrolls: -19.52 mil (actual) vs. -20.94 mil (estimate)

April unemployment rate: 14.7% (actual) vs. 16.4% (estimate)

April average hourly earnings: +4.7% (actual) vs. +0.3% (estimate)

Happy trading!

Tom