EB Daily Market Report - Thursday, June 4, 2020

Tom Bowley - June 04, 2020

Executive Market Summary

Futures were slightly lower this morning, but buyers returned again once the opening bell rang
Initial jobless claims were slightly higher than expected
The S&P 500 has key price resistance at 3130 and today's high was 3129
The NASDAQ 100 ($NDX) has record all-time closing high resistance at 9718 and we're testing it again...and failing
Financials (XLF) and industrials (XLI) are leading today as the 10 year treasury yield ($TNX) has risen to 0.81%
Crude oil ($WTIC) is down 1.7%, while gold ($GOLD) is rebounding
Sentiment readings are suggesting extreme caution near-term; more on that below

Market Outlook

Ok, we've got short-term issues to deal with, so I'm building cash. On the surface, everything looks peachy and I remain steadfastly bullish for the more intermediate- to longer-term. But the market is growing very complacent in the short-term. A key Volatility Index ($VIX) support level resides near 25. The VIX has fallen below that level intraday, but if we get a big recovery today or tomorrow, I'd grow more concerned about U.S. equities short-term. When the VIX spiked above 30 in late-February, it came down to 24.76 on February 26th and 24.93 on March 3rd. Today's low hit 24.38, which clears both of those levels. The good news is that moving beneath those earlier lows is necessary for the VIX to eventually work its way back towards 10-12, which is where I prefer to see it. But we need to be aware of a reversal at this level. If it occurs, it could spell trouble near-term. The NASDAQ 100 ($NDX) has been the leader in stocks and it's trying once again to pierce a major closing resistance level at 9718. Technically, we should expect to see sellers attempt to take a stand right here. A reversal in the VIX could set the stage for a short-term top in our key indices, especially the NDX:

The VIX just below 25 also occurred with tops just above 3100. So while the NDX is testing its record all-time high close of 9718, the S&P 500 is testing a key resistance level of its own at 3130.

Sector/Industry Focus

Rather than pull up a sector or an industry chart, I want to continue with that sentiment theme that I started by reviewing the VIX above. The equity only put call ratio ($CPCE) is a key measure of how greedy/fearful retail traders are. A high reading tells us that emotional retail traders are panicking, which typically marks key bottoms, while a low reading measures the extreme confidence that these emotional traders are displaying. By the way, not all options traders are emotional, but the masses certainly can be.

Near the March 23rd bottom, we saw the 5 day moving average of the CPCE hit an all-time high, since this ratio has been tracked at least. At the February 2020 top, we had moved below .50. It wasn't an all-time low on the CPCE, but it was very low reading historically. I have found that high CPCE readings tend to be more reliable at predicting bottoms than low CPCE readings have been at predicting tops. Still, check out this chart:

We know also that once we move past the 6th calendar day of the month, the tendency is for short-term profit taking to kick in, so that's another consideration right now. Just remember this - two weeks from tomorrow is options expiration Friday. If this rally keeps going, there will be a MASSIVE number of in-the-money calls and the problem would only grow.

ChartLists

I think it's a good idea to pass on trading ideas right now. You can run scans against our ChartLists if you feel the need, but I'm actually ignoring any trading thoughts today as I want to see how the stock market reacts to the short-term issues I identified above.

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:

Thursday, June 4:

AVGO, DOCU, WORK, COO, MDB, SJM, CIEN, MTN, TTC, SAIC, RH, GPS, NAV, SCWX

Friday, June 5:

None

Economic Reports

Initial jobless claims: 1.88 mil (actual) vs. 1.79 mil (estimate)

Q1 productivity (2nd estimate): -0.9% (actual) vs. -2.5% (estimate)

Happy trading!

Tom