EB Daily Market Report - Monday, June 29, 2020

Tom Bowley - June 29, 2020

Special Note

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Executive Market Summary

U.S. equities got off to a mixed start this week as the Dow Jones rebounded, while the NASDAQ hit fresh recent lows
May pending home sales skyrocketed more than 44% and the home construction group ($DJUSHB) is up 1.43%
Industrials (XLI, +2.45%), materials (XLB, +2.13%), and consumer staples (XLP, +2.01%) are leading
All 11 sectors are higher, but technology (XLK, +0.38%) is taking a back seat today
Industry leadership is coming from recently beaten-down areas like airlines ($DJUSAR, +4.46%) and aerospace ($DJUSAS, +4.41%)
Gold ($GOLD) and crude oil ($WTIC) are both higher, but the 10 year treasury yield ($TNX) is flat despite the excellent pending home sales report
Boeing (BA, +6.21%) is the Dow Jones' best performer today

Market Outlook

The good news is that today is historically the start of a pre-earnings runup that typically carries prices higher. Since 1950, the S&P 500 has produced annualized returns of 25.13% from the June 27th close through the July 17th close. So that historical bullish trend begins today.

Technically, the S&P 500 is bouncing almost exactly where I discussed last week. There's actually quite a bit of support between roughly 2950-3000 and today's low was 2999.74. Here's a reprint of the S&P 500 chart provided on Thursday last week:

We've still got a long way to go today and conditions can change rapidly in a highly-volatile environment. But, thus far, the bulls are protecting their turf - at least the top part of it. One difference in this advance - and I'm not at all surprised by it - is that it's being led by our "Weak AD" stocks. These are the stocks most negatively impacted by the coronavirus. Check out the Sector/Industry Focus below for more information about that.

Sector/Industry Focus

On Friday, I pointed out that financials were at a critical support area. So were the industrials (XLI) and that's the group leading today's action. Check out this chart:

This could be starting a period of outperformance for the industrials after lagging for the past 2-3 weeks.

Here's a breakdown of today's performance between our various ChartLists:

Check out the row of "Stocks gaining > 3%". The Weak AD ChartList has a huge advantage today, but that has not been the case the past 2-3 weeks. I wouldn't be surprised if that's a theme this week, or at least for a few days. Weakness in our Strong AD, SECL, and SFECL ChartLists will be great opportunities, in my opinion, as the market's attention turns back to earnings - and it will turn back to earnings soon. It always does.

ChartLists

I mentioned a number of ChartList stocks on Friday that were in the midst of a downtrend and I was awaiting reversal (higher daily high). Of those mentioned, here are 3 that potentially could be ending their respective downtrends:

CWH:

Everything looks great here, except for that negative divergence. That makes trading CWH right now a very risky proposition. Unfortunately, that's the problem with many leading stocks right now and that's opened the door for underperformers to take over leadership for a short while.

CTXS:

Check out that blue-dotted vertical line. That marks the time that CTXS first printed its negative divergence. It has since consolidated and lost relative strength as a result. But it's now seen its PPO fall back to centerline support and I wouldn't be at all surprised to see both absolute and relative strength resume from here.

ZTO:

ZTO has been one of the best market performers of 2020, but it's extended and that negative divergence suggests that we be a bit more cautious in the short-term. Once consolidation runs its course, however, I'd look for ZTO to resume its prior strength.

One last stock I'd like to mention is Advanced Micro Devices (AMD). I've been watching it to get a better reward to risk setup and that might be occurring today. AMD is threatening a breakdown intraday, but a late day reversal could suggest a bottom has printed. It's at key price support as you can see below:

Since double-topping in April, AMD has been consolidating and that high in April coincided perfectly with the end of its relative strength. Relative strength almost always moves lower during a period of consolidation, which is exactly what AMD has been seeing. If AMD marks a bottom today, though, it could lead to a significant pre-earnings run higher. One word of caution: MU reports its quarterly earnings after the bell today, so that could impact the short-term trading of all semiconductor stocks.

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 29:

Tuesday, June 30:

FDX, CAG, AYI, MEI

Economic Reports

May pending home sales: +44.3% (actual) vs. +11.3% (estimate)

Happy trading!

Tom