EB Daily Market Report - Friday, June 19, 2020
Executive Market Summary
- Futures were strong heading into the open with our key indices higher by roughly 1%
- That strength has been waning a bit since the open with the NASDAQ outperforming
- The Volatility Index ($VIX) continues heading lower, down 6% at last check below 31
- Crude oil ($WTIC) is surging above $40 per barrel for the first time since the huge gap lower in early-March
- The higher crude is sending traders into energy (XLE, +1.52%), which is leading today's advance
- Health care (XLV, +0.97%) is showing renewed relative strength, something to monitor very closely as I could see this group leading, along with technology, as we head towards earnings season
- Real estate (XLRE, -0.07%) is currently the only sector in negative territory, although financials (XLF, +0.04%) are close to joining
- Apple (AAPL, +0.78%) hit an all-time high today after Jefferies raised its target to 405, citing 5G cycle confidence
Market Outlook
There are so many short-term reasons for the stock market to go down.....but it's not. To me, that's simply another signal that the secular bull market current is intact and the bid for U.S. equities remains. It's the 19th day of the calendar month - the worst day of all calendar months. It's options expiration Friday, where market makers would love to see prices move lower (or at least they'd make more money if prices were to drop). Negative divergences remain in many areas of the market. Many groups are overbought. None of it seems to matter.
To top it off, money is pouring back into the higher growth NASDAQ stocks. This is made quite clear by the following QQQ:SPY relative chart:
The stock market knows earnings will be better than expected AND it also knows that historically-low interest rates will fuel higher PE ratios. The media never talks about this, but that latter statement is the big reason why I believe equity prices have only just begun their march higher.
There's no doubt that I remain nervous short-term, because I'm a historian and I know quite well what can happen during this time of calendar months. But what we're witnessing right now is EXACTLY why I don't like shorting. Hedging is fine, but you will not find me downright bearish ever when I believe we're in a secular bull market. Cautious and moving to cash occasionally? Yes. But bearish? No.
Sector/Industry Focus
Software ($DJUSSW) has broken out. So has computer hardware ($DJUSCR). The only one of the three technology amigos that's awaiting that next step is semiconductors ($DJUSSC). We may not have to wait long:
The blue circles show that each recent penetration of the rising 20 day EMA has been the turning point for this very influential area of technology. A breakout would likely lead to a rush into this group as earnings season approaches.
ChartLists
We recently updated our Short Squeeze ChartList (SSCL) and I took some time last night to pour through all 95 charts to see which are either breaking out or on the verge of it. Here are several that have AT LEAST 30% of their floats short:
GME:
(Disclosure: I own GME)
There are a lot of folks betting against this company and they might have good reason. But it's undeniable that Wall Street favors specialty retailers right now and GME has been uptrending vs. the group for awhile now. A breakout could easily send GME to 6.00 in a hurry. There's always risk in trading any stock, especially heavily shorted companies, but the potential reward can be tremendous. For the most part, I'd suggest only those with high risk tolerance levels foray into the world of short squeezes.
MTCH:
(Disclosure: I own MTCH)
MTCH broke out yesterday on an absolute basis, and it's also breaking out vs. the S&P 500. With 73% of its float short, it sure seems like there could be a short covering rush here.
BBBY:
(Disclosure: I own BBBY)
I reported yesterday that money continues rotating into specialty retail ($DJUSRS). Like GME, BBBY is starting to show relative strength in this group and a breakout here could trigger a mad rush to the exits (buying) for the shorts. I think BBBY looks better technically than GME, but GME has a massive pile of shorts that could be in trouble on a breakout there.
AXDX:
(Disclosure: I own AXDX)
Obviously, I like trading short squeezes. But I typically do it with smaller positions than I ordinarily would trade. And remember, these stocks could have large short positions for a very good reason. Expect whipsaw action.
AIMT:
APT:
HIBB:
I don't any of these last three, but I'm watching them closely. Relative strength has been improving on all three, but I generally don't anticipate breakouts (GME is definitely an exception today). I like to see the volume accelerate and the stock clear candle body resistance (highest open OR close).
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 19:
KMX, JBL
Monday, June 22:
None
Economic Reports
None
Happy trading!
Tom