EB Daily Market Report - Friday, June 12, 2020
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DMR Correction
I was scheduled to host a recording of StockCharts TV's latest episode of "The Pitch" yesterday at 1:00pm ET, but because the market was so weak, I wanted to publish our DMR prior to that show recording. In my haste, I made an error. Under the "Sector/Industry Focus" section, I discussed the health care ETF (XLV), but then published a VIX chart instead of the XLV. My apologies. I wanted to show the VIX, but I also wanted to show the XLV as negative divergences can many times lead to 50 day SMA and PPO centerline tests. Anyhow, here is the chart I wanted to show you:
I've been a big fan of health care stocks and remain one, but a big break of price support near 96.50 would require a reevaluation.
Executive Market Summary
- Futures were strong after a trashing of U.S. equities on Thursday; yesterday's losses rivaled many of the worst days in March as the selling started at the open and didn't end until the closing bell rang
- Selling was widespread, but more heavily concentrated in areas that struggled the most in March and April
- The 10 year treasury yield ($TNX) is up 3 basis points to 0.68%, but technical damage has been done
- Asian markets were weak overnight, while European markets are trying to hang onto early gains
- Volatility ($VIX) is down slightly; fear remains elevated, suggesting further caution
- All 11 sectors are higher, but early strength is concentrated in materials (XLB, +1.89%)
- Clothing & accessories ($DJUSCF, -1.72%) are weak after both PVH Corp (PVH, -8.43%) and Lululemon (LULU, -3.04%) reported revenue and earnings misses
Market Outlook
As we begin what could be a period of selling and consolidation, there are a couple key points to think about. First, as we move lower, the initial point of resistance will be the declining 20 hour EMA. All of our major indices have broken below that moving average and short-term downtrends cannot end without first clearing that level. Here's a current look at the S&P 500's hourly chart:
Using the slope of the recent highs, I dragged several lines lower to intersect recent support levels. These are "potential" areas of channel support. The horizontal lines are a few levels that I believe could be our short-term destination. But the thing to remember here is that the Volatility Index ($VIX) is now at 43.65 (+7.01% today thus far) and rising. A VIX at that level and rising represents a stock market that I mostly want to avoid as a trader. I don't like trying to catch bottoms as fear is ramping up. Downside moves tend to be incredibly swift as market makers know they can buy cheaper and simply go "on vacation". Holding longs into this action can suffer significantly from violent episodes of impulsive selling.
My long-term position regarding U.S. stocks has not changed a bit. I'd stay the course. I'm only talking here about how I trade this type of market in the very near-term. The Dow Jones was up more than 800 points in the first 30 minutes. One hour later, the Dow Jones was up just 100 points. That's the type of swift downside action I'm referring to. I honestly have no idea, zero, where we will finish today. Therefore, trading today is more like gambling. Managing risk becomes extremely difficult and that's the backbone of my trading strategy.
Sector/Industry Focus
When I began writing this DMR, the Dow Jones was up nearly 600 points. It's now up 100 points. The NASDAQ has turned negative. This is what we're up against near-term. Listen, we've made a big run and I've talked about needing a period of selling and consolidation. This isn't bad, it's necessary. We'll have many opportunities once this bout of fear and selling settles down. In the meantime, please be careful.
Over the past week, 5 industry groups have posted positive results. Here they are:
Broadline retail ($DJUSRB, +1.36%)
Toys ($DJUSTY, +1.33%)
Gold mining ($DJUSPM, +1.16%)
Mining ($DJUSMG, +1.03%)
Computer hardware ($DJUSCR, +0.64%)
Gold mining and mining typically go up when fear rises, so I'm not particularly interested in those two groups. However, take note of the other three. Wall Street is making a statement. Ever heard of that old saying, "Actions speak louder than words"? Well, pay no attention to what you here on CNBC. Instead, pay attention to what this relative strength means. These are actions, not mere words.
ChartLists
I am once again going to pass on trade ideas, but I want to say that I've been tracking major index, sector, and industry group performance over key time periods and I'll be providing you the results of my analysis soon and it'll help guide us into the upcoming earnings season.
In the meantime, here's today's performance breakdown as of 11:35am EST:
Today, the Weak AD ChartList stocks are performing best, though that outperformance has been shrinking as the market sells off from earlier highs. (Btw, the Dow Jones is now up 400 points - volatility is CRAZY).
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:
Friday, June 12:
None
Monday, June 15:
None
Economic Reports
June consumer sentiment: 78.9 (actual) vs. 75.0 (estimate)
Happy trading!
Tom