EB Daily Market Report - Monday, May 18, 2020

Top 10 Stocks - Sneak Preview

We'll be having a big event tonight that I hope all of you can attend. It's our "Sneak Preview" of tomorrow afternoon's "Top 10 Stocks" webinar, which is literally our DRAFT of 10 stocks for each of our portfolios for the next three months. Tonight's sneak preview will begin at 4:30pm. Room instructions will be forthcoming this afternoon....or just check our website later.

Executive Market Summary

• Futures were strong early this morning, and then strengthened even further as Moderna (MRNA) announced positive trial results from its COVID-19 vaccine
• Beaten-down areas of the market are rallying strongly today, likely benefiting from options expiration on Friday
• Crude oil prices ($WTIC) are surging 12% today to nearly $33 per barrel, its highest level since the mid-March equity low
• The 10 year treasury yield ($TNX) is up 7 basis points to 0.71%; a strong housing report took a toll on bond prices
• Asian markets were strong overnight, but European indices are exploding higher with the German DAX ($DAX) up 5.43% at last check
• The Dow Jones is rallying 836 points, or 3.53%
• Leadership is coming from energy (XLE, +7.92%) and industrials (XLI, +6.22%; airlines ($DJUSAR, +11.80%) are surging and leading the latter sector

Market Outlook

The short-term impact of options expiration can never be overstated in my view. Today's rally, while unexpected in the sense that we're moving into that part of the calendar month where we generally see weakness, could easily have been expected in beaten-down areas of the market as many stocks in those areas had very heavy net in-the-money put premium as we ended last week. Airlines ($DJUSAR, +10.78%) haven't caught a bid since the pandemic began, yet somehow they've mysteriously become the best performing industry group today. Southwest Airlines (LUV, +10.56%), with a max pain level closer to 30, traded as low as 22.46 on Thursday morning. It's at 26.36 and climbing today. Market makers to the rescue!

The S&P 500 is attempting to clear its April 29th high at 2954 and it's right on the verge of doing so:

A breakout here would add to the overall bullish tone we've seen since the March 23rd bottom.

Sector/Industry Focus

Home construction ($DJUSHB) got a lift this morning when the May Housing Market Index was reported at a much-better-than-expected 37 level. Estimates were pegged at 33. The group had already been strengthening, but now we're looking at what could be a very powerful breakout today:

Consumer discretionary (XLY) has been strengthening over the past several weeks and the above chart certainly won't hurt, especially if we see that breakout on the close.

ChartLists

First, we've updated our Strong Earnings ChartList (SECL). When signed into your account at EB.com, on the left navigational panel, click on "ChartLists" under the "Members" section. You'll be able to click on the link, type in the password provided and download the new SECL ChartList directly into your account!

I looked at stocks on all of our ChartLists that were printing a higher high today for the first time in at least the last four days. Here were two candidates that I thought looked particularly promising in the near-term:

INSG:

INSG was recently derailed by a secondary public offering, but it seems to be trying to regain its momentum. It was a 15 dollar stock just a little more than 3 weeks ago. (Disclosure: I own shares of INSG)

MPWR:

The bounce higher is the confirmation I'd be looking for, but MPWR could have been traded on Friday. Any time a solid uptrending stock hits both price support and its 20 day EMA (with a strong PPO at the most recent price high), I view it as a solid reward to risk entry point. Unfortunately, I don't own this one, but it looks quite constructive.

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. If you decide to hold a stock into earnings, please understand the significant short-term risk that you are taking. Please be sure to check for earnings dates for any companies you own or are considering owning:

Monday, May 18:

BIDU, SE, IQ, BILI

Tuesday, May 19:

WMT, HD, NTES, AAP, WB, KSS, URBN

Economic Reports

May housing market index: 37 (actual) vs. 33 (estimate)

Happy trading!

Tom