EB Daily Market Report - Wednesday, May 20, 2020

WAR Room - Friday, May 22nd, 10:00am ET

We are moving our final WAR Room meeting from Saturday to Friday this week to allow us, and all of you, time to relax and enjoy the extended Memorial Day holiday weekend here in the U.S. The topic on Friday will be "Scanning Our ChartLists". Invite your family and friends to join us as we'll make this one open to the public. Room instructions will be posted on our website, but also sent out via Friday's EB Digest article. So invite everyone you know to join our free EB Digest newsletter (sign up is on our home page) and they'll receive room instructions for Friday as well.

These WAR room sessions were designed to provide us all something constructive to do while we were under stay-at-home orders. In addition to the health scare, which is ongoing, it was also a time to bring our EarningsBeats.com community together to battle the fear associated with the stock market decline. While we at EarningsBeats.com can't do much about the pandemic, except to pray for everyone's health and safety, there's a bunch we can do to help everyone throughout a period of intense financial fear and panic. We hope that we've helped in that regard.

Prior to the pandemic, we did occasionally host Friday webinars and we've had guests join us for those events from time to time as well. We'll no doubt have a Friday webinar periodically throughout the summer and we'll keep you posted in advance for dates and times.

Executive Market Summary

• Futures were strong out of the gate this morning
• All of our major indices are enjoying a strong session, led by small ($SML) and mid caps ($MID)
• All 11 sectors are higher with energy (XLE, +3.26%) and communication services (XLC, +2.85%) leading
• Health care (XLV, +0.57%) is lagging as pharmas ($DJUSPR, -0.39%) drag the group down
• The 10 year treasury yield ($TNX) is moving slightly lower, down a basis point to 0.70%
• Crude oil ($WTIC) has jumped another 3.35% to $33 per barrel; gold ($GOLD, +0.25%) and other commodities are mostly higher today as well
• Part of the commodity strength is likely the result of the U.S. Dollar trading lower and nearly reaching 2 month support
• Lowes Companies (LOW, +0.38%) and Target Corp (TGT, -2.40%) both beat profit estimates, but have been selling off since opening higher

Market Outlook

Let's take an updated look at the S&P 500. Pay attention if we see a failure on a daily breakout attempt as there's a negative divergence on the hourly chart:

S&P 500 - daily:

S&P 500 - hourly:

Looking at these charts, I believe today's S&P 500 is for real. I believe we're going to break above 3000 and head for the price resistance line at 3130. But.....if we fail today and there's a reversing candle and a close back down near 2950 or below, the 60 minute neg divergence could kick in and send us lower for a couple days. Personally, I'll be sticking with the long side of the trade, giving the bulls the benefit of the doubt.

Sector/Industry Focus

One by one, we're seeing industry groups with poor relative strength beginning to break out. On Monday, I featured the home construction group ($DJUSHB). Today, let's look at railroads ($DJUSRR):

I always like to see industry groups breaking out, adding to the bullish theme. But transportation areas are particularly encouraging because they're so closely tied to future economic activity. A breakout here today would put a large check mark in the bulls' ledger.

ChartLists

Given the potential breakout in railroads today, one step that I automatically do is check our key ChartLists for any stocks within a group that is showing considerable strength, looking to identify possible trade setups. I use the "Summary" feature to summarize the ChartLists and then I type "railroad" into the search box to bring up any stocks within that group that appear on our ChartLists. Here are examples using our Strong Earnings (SECL), Strong AD (SADCL), and our Weak AD (WADCL) ChartLists:

SECL:

SADCL:

CP was the only railroad on our Strong AD ChartList.

WADCL:

There were no railroads on our Weak AD ChartList, which maybe is a good sign for the industry group. It certainly makes today's potential breakout more believable in my mind.

On my morning Trading Places LIVE show, KSU was featured as one of my "3 You Must See" charts. I mentioned that I really liked what was developing on the chart, so I'm not surprised it's performing well today. On the SECL above, it's also the highest SCTR-ranked railroad stock. By being on the SECL, I already know it's beaten its revenue and EPS estimates in its latest quarterly earnings report. That provides me more confidence that KSU could head higher. Finally, here's the technical confirmation:

It's clear to me that KSU is behaving much more bullishly. If it reverses this afternoon and fails to clear the breakout level, then perhaps we'll see a short-term pullback to test its rising 20 day EMA. But I like what I see on this chart, including the PPO crossing centerline resistance, the price breakout, and the rising AD line over the past 7-8 months.

That's a glimpse into how I start my process of evaluating the market's action, then looking for an actionable trading idea within the ChartLists (our homework) that can be downloaded into your StockCharts.com account.

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:

Wednesday, May 20:

LOW, TGT, ADI, MCK, SNPS, ZTO, CPRT, TTWO, EXPE, NDSN, RCL, VER, YY, EV, LB

Thursday, May 21:

NVDA, MDT, INTU, TJX, ROST, A, HRL, SPLK, PANW, BBY, HPE, DECK, BJ, PRSP, RAMP, ELF

Economic Reports

None

Happy trading!

Tom