EB Daily Market Report - Thursday, June 25, 2020

Executive Market Summary

• Futures are pointing to a slightly lower open on the Dow Jones and S&P 500, while the NASDAQ shows a slight gain
• In economic reports, May durable goods came in very positive and well ahead of estimates, while initial jobless claims were higher than expected - so a mixed bag
• One very important development to watch today will be the 10 year treasury yield ($TNX), which is currently threatening a key yield support level at 0.65%; the TNX is down 3 basis points to 0.66%
• Crude oil ($WTIC) has been stumbling lately, and is down more than 2% this morning - bad news for energy
• The International Monetary Fund (IMF) cut their global GDP in 2020 from -3.0% to -4.9%
• Global markets were mixed (China's Shanghai and Hong Kong's Hang Seng are closed Thursday for a holiday)
• Stocks expected to do much better as the economy reopened are in the midst of taking another big hit - think airlines, cruise lines, hotels, recreational services, etc.
• Accenture (ACN) up 5% in pre-market as revenue and EPS surpass estimates
• McCormick & Co (MKC) is also slightly higher after reporting strong quarterly results

Market Outlook

The main thing I'll be watching is to see when the current downtrend shows a sign of reversing. As long as the S&P 500 continues to print lower highs and lower lows, then we're technically in a downtrend. From a price support perspective, here's a daily chart of the SPX to watch:

There are a couple price support levels near 2950 and 3000 to watch. Also, if we use the recent highs to generate a trendline, and then drag that same slope down to the low in early-April, we can visualize a potential channel. That lower uptrend line would coincide with that range of price support. So selling down to that 2950-3000 would be normal profit taking in my view, while a break below it could signal further weakness.

Sector/Industry Focus

Walt Disney (DIS) is down another 2.5% in pre-market action today and will likely put a lot of pressure on the broadcasting & entertainment group ($DJUSBC). This industry will likely test key gap support after it tested key price support yesterday. Also, similar to the S&P 500, there's a potential lower channel line that could come into play as well. Check this out:

What I really focus on here is that the DJUSBC has been a relative laggard for many months now, despite being part of a strong consumer discretionary sector (XLY). I do not EVER make excuses for a stock or industry that's failing to keep up with the S&P 500. Respect that relative downtrend. Wall Street is staying away from this group, as a whole, so we probably should too. And if we see a break of support in an underperforming group, that's all the more reason to stay away.

ChartLists

We have a Downtrend Reversal scan on our website, but given the fact that the NASDAQ 100 printed a lower low yesterday, I decided to reverse that scan (consider it an Uptrend Reversal scan). So I ran a scan against our Strong Earnings ChartList, looking for companies that had printed higher lows for at least 5 days in a row, but yesterday printed a lower low. It returned the following 4 stocks:

BMRN, FVRR, LOVE, RDFN.

Let me be clear, I don't short stocks in a secular bull market. However, it'll be interesting to watch these four stocks to see if they can quickly regain their short-term upside momentum, or if yesterday's pause actually leads to further short-term selling. The one with a really rough looking negative divergence is RDFN:

While I wouldn't short a stock like RDFN, I'd certainly have to give consideration to selling it, or at least a portion of it, if I was holding in on the long side. Perhaps it simply keeps on trucking higher, but the risk of holding it has grown.

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 25:

NKE, ACN, MKC, FDS, DRI, SNX, WOR, PRGS, RAD

Friday, June 26:

None

Economic Reports

May durable goods: +15.8% (actual) vs. +10.0% (estimate)

May durable goods ex-transports: +4.0% (actual) vs. +1.9% (estimate)

Q1 GDP (Final): -5.0% (actual) vs. -5.0% (estimate)

Initial jobless claims: 1,480,000 (actual) vs. 1,380,000 (estimate)

Happy trading!

Tom