EB Daily Market Report - Monday, July 13, 2020

Tom Bowley - July 13, 2020

Today's Event

We will be hosting our "Q2 Earnings - Sneak Preview" event later this afternoon at 4:30pm ET. I'll be taking a look at recent strong earnings reports and also a look ahead to this week's most compelling reports as well. I'll dig through all the bank earnings reports, the upcoming Netflix (NFLX) report, and two critical earnings reports in the transportation area, plus many others. I hope you can join me. Here's the link to join (the room should be open by 4:00pm ET):

https://us02web.zoom.us/j/82624565055

A recording will be available to all of you that are unable to make the live event.

Executive Market Summary

Futures were strong out of the gate this morning and buyers added to this strength during the morning session
After the S&P 500 barely broke above its June 8th high, sellers have attempted to gain control of the action
The 10 year treasury yield ($TNX) was up 3 basis points, but is now up less than 1 basis point
Tesla (TSLA) is seeing a huge reversal; it was higher by more than 200 points, but just turned negative - this could represent a near-term top
Health care (XLV) and industrials (XLI) are leading today's action
Real estate (XLRE) is the only sector in negative territory
Gambling stocks ($DJUSCA) are the best performers today, led by Wynn Resorts (WYNN), which is the S&P 500's best performing stock

Market Outlook

If the current environment highlights one thing more than anything else, it's that shorting a secular bull market can be excruciatingly painful. There were, and still are, reasons to be extremely cautious right now. The equity put call ratio ($CPCE) is .49 at last check at CBOE.com. This could mark the 6th day out of the last 7 that the CPCE finishes below .50 - extremely bullish options sentiment. Of course, when extreme sentiment readings begin to kick in, we need to be vigilant. Even if you're fully invested on the long side, you need to be at least aware of the downside potential given sentiment readings.

The Volatility Index ($VIX) generally moves lower when stock prices are advancing. Not today, however. The VIX is up nearly 5% today and it's been rising all day long. The fear could be escalating as the S&P 500 nears key overhead price resistance:

I understand there's plenty to be fearful of given this latest advance. But nothing, in my view, is more important than a good old fashioned breakout. 3232 is a key level on the S&P 500. We touched 3235 around 1:30pm ET, but we've since pulled back just below the breakout level. Where will we finish? A strong finish and a breakout would be bullish - until we see some sort of major reversal to suggest otherwise.

Also, be mindful of the NASDAQ 100 ($NDX). It's currently showing a possible reversal with huge reversals in big names like Tesla (TSLA) and Netflix (NFLX) from earlier highs.

Sector/Industry Focus

Health care (XLV) is leading today and I've remained bullish about the earnings of many of these companies. We have seen several weeks of consolidation for the XLV, however, so pay particular attention if we get the breakout that I've been waiting for:

Looking back, that false breakdown triggered this latest advance in the XLV. Then, at the end of last week, we had two successful tests of the rising 20 day EMA, which is indicative of an uptrend. The only thing really left is to clear 104. I believe we're about to see it.

ChartLists

I reviewed all of our ChartLists to see how each is performing relative to one another. Here is a breakdown in performance today:

After the way the market traded on Friday, with rotation back away from our strongest pandemic stocks to our weakest, I fully expected to see carryover today of that same rotation. I'd say there's been some of that, but the NASDAQ has powered full speed ahead, led by the FAANG stocks - FB, AMZN, AAPL, NFLX, GOOGL.

Here are two stocks from our Strong Earnings Chart List (SECL) that will be reporting soon that appear to be breaking out to new highs, or on the verge of it:

DGX (reports July 23rd):

DGX is seeing increasing volume as it tests overhead resistance. I've written about DGX recently and believe it's one of the better health care providers ($DJUSHP). A confirmed breakout today, especially with the surge in volume, would be bullish.

SHW (reports July 28th):

SHW's volume today is light, so that's a major difference from DGX. But it's been consolidating. It would be very bullish to see a close above 600, especially if the volume were to pick up to confirm. SHW still has a couple weeks to its earnings date, so let's watch for a possible breakout as we get closer.

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, July 13:

PEP

Tuesday, July 14:

JPM, C, WFC, FAST, FRC, DAL

Economic Reports

None

Happy trading!

Tom