EB Daily Market Report - Monday, June 8, 2020
Executive Market Summary
- Futures were strong, but once again were skewed towards Dow Jones stocks
- Small cap ($SML) and mid cap ($MID) stocks are leading today
- The NASDAQ 100 ($NDX) is actually down fractionally
- In a surprising development, the Volatility Index ($VIX) is up 3.47% despite a rising equity market; one day doesn't make a trend, but should the VIX rise with the major indices, that would constitute a big red flag
- The 10 year treasury yield ($TNX) is down 4 basis points to 0.86%; financials (XLF, +1.14%), however, remain relatively strong
- Energy (XLE, +3.17%) is adding to its recent strength, while utilities (XLU, +1.85%) also show strength
- Strength in the XLE comes despite a nearly 3% drop in crude oil prices ($WTIC)
Market Outlook
The market remains upside down for now. For those of you that are new to EarningsBeats.com, when I say "upside down" I'm referring to the leadership. For 8-10 weeks, the "pandemic" stocks were leaders. Companies that were expected to benefit from stay-at-home orders and working from home were surging higher, more than offsetting those companies that were much more likely to struggle in that scenario. Now that states have reopened their economies, those previous laggards (which are companies that comprise our Weak AD ChartList) are clearly the leaders. There's no disputing it right now. Here's how our various ChartLists are performing today:
As you can see, not much has changed. 64% of Weak AD ChartList stocks have gained at least 3% today (the S&P 500 is only higher by 0.47%). But only 14% of the Strong AD ChartList stocks have gained at least 3%. Trading remains safer among the previously beaten-down names. It's obvious also when we look at sector performance, which is highlighted below.
Sector/Industry Focus
Here's today's sector leaderboard:
Technology (XLK) and health care (XLV) remain at or near the bottom of the leaderboard, exactly where they've mostly been the past two weeks, especially the XLV. I firmly believe that will change, but the change doesn't appear likely today.
Semiconductors ($DJUSSC) are down today after a solid week last week. Looking at the chart, however, shows the significant resistance that the group is facing. Pausing at this level isn't a bearish development at all, but it is frustrating if you're trading the group while much of the rest of market accelerates higher:
I really like the semis, but consolidation here wouldn't be a terrible thing. Momentum is actually quite strong so a breakout is certainly possible. If we do pull back, however, watch that rising 20 day EMA. That's where I expect buyers would return.
ChartLists
Using our Downtrend Reversal scan available on our website, I searched our Strong Earnings ChartList (SECL) and Strong AD ChartList (SADCL) to attempt to uncover stocks that could be reversing after a steady diet of selling over the past week or so. Two stocks that came up were as follows:
TTWO:
We don't know for sure that this is a major reversal, especially given the current environment where the recent relative winners are completely being ignored. But if we're treating this as an uptrending stock longer-term, then we should expect recent highs to be retested (target). To the downside, the Friday low of 125ish should hold if we're truly reversing. $17 upside vs. $5 downside equals more than a 3:1 reward to risk ratio, which is solid. If TTWO pulls back a bit this afternoon, that ratio improves.
ABT:
The big negative here is the fact that pharmas have really fallen on a relative basis. Before ABT began consolidating, however, it had broken to a 52 week relative high, a bullish signal. Therefore, I wouldn't be surprised to see another uptrend begin from the current level. I really like that false breakdown on Friday and reversal. The reward to risk at the current level is only slightly better than 2:1, but an afternoon dip could help that ratio.
I also looked at the Short Squeeze ChartList (SSCL) as it's provided so many excellent trading candidates of late. One of the most heavily shorted stocks in the stock market universe is Gamestop Corp (GME). Volume today is accelerating and it's threatening what would be a significant short-term breakout at 4.75. VERY AGGRESSIVE traders could take a shot here, but please understand the significant risks of a stock like this if it fails. The reward, however, could absolutely be explosive if we get that confirmed breakout. One other MAJOR consideration is that GME reports quarterly results after the bell on Tuesday. So this one could move BIG TIME in either direction. A bullish reaction will put the shorts in a very bad spot, though. Here's the chart:
It tried to make the breakout intraday and is now back below the breakout level. A close above 4.75 would make for a most interesting day tomorrow leading up to that earnings report.
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, June 8:
COUP, CASY, THO, SFIX
Tuesday, June 9:
BF/B, CHWY, TIF, FIVE, HDS, VRNT, SIG, AMC,
Economic Reports
None
Happy trading!
Tom