EB Daily Market Report - Tuesday, July 21, 2020
Executive Market Summary
- Futures were higher across the board, but rotation is skewing towards the Dow Jones and S&P 500 today
- The US Dollar (UUP) is taking another hit today, with commodity prices soaring
- Crude oil ($WTIC) is up more than 3%, while silver is up more than 6%
- Gold ($GOLD) has hit $1840 per ounce, its highest level since 2011
- The 10 year treasury yield ($TNX) remains under pressure, falling 2 basis points to 0.60%
- Global markets were higher in Asia overnight and are up in Europe today
- Energy (XLE, +6.35%) is soaring, while financials (XLF, +2.24%) and industrials (XLI, +1.83%) also perform well
- Technology (XLK, -0.41%) is the only sector in negative territory and it's clearly having a negative impact on the lagging NASDAQ
- Biotechs ($DJUSBT, -1.48%), after leading for weeks, are seeing profit taking
Market Outlook
If the German DAX ($DAX) is any indication (and it usually is), the S&P 500 is going higher. Yesterday, the DAX closed above 13000 for the first time since the February descent began. In the process, it cleared the June 8th high. Sound familiar? It should because the S&P 500 is achieving a similar feat. The SPX cleared its June high yesterday and is adding to those gains today. Here's a look at these two positively-correlated indices:
Ever hear, "what's good for the goose is good for the gander"? Well, these two major markets tend to do what the other is doing. If I covered up the labels on these two charts, you might think they were the same. It's why I always pay close attention to how German shares are trading, but rarely discuss China shares. Here's the same one year view, but this time comparing the China Shanghai ($SSEC) to the SPX:
You only need to take one look at the correlation panel at the bottom to see that these two indices can trade opposite one another quite often. So when CNBC discusses the Shanghai and what's going on in China and tries to draw a parallel to the SPX and the United States, remember this chart.
We trade much more in line with Germany.
Sector/Industry Focus
Speaking of Germany, have you noticed how the German ETF (EWG), which is designed to track the DAX, is outperforming the DAX? A falling dollar ($USD) increases the returns of foreign ETFs. Check this out:
So let's go back to my discussion yesterday of the dollar holding onto long-term trendline support at 94. I believe global markets are in a secular bull market and are heading higher. International ETFs become MUCH more attractive if the U.S. Dollar Index breaks that 94 support level. Keep that in mind. You benefit not only from an advance in shares in the country's ETF that you own, but you also gain from a a weakening dollar. It's a win-win.
ChartLists
I scanned our Strong Future Earnings ChartList (SFECL) today looking specifically for stocks that were producing heavy volume in early action. I set the scan to only pick up those companies on this ChartList that traded 75% of their normal daily volume (over the last 90 days) in the first hour of trading today. There were 16 results as follows:
IBIO, OPK, HL, CTIC, CTSO, EBS, LOGI, ACTG, USX, MBUU, LLNW, FBIO, AXTI, ENZ. ACAD, BLDP, NKLA. Of these, I wanted to cover four:
MBUU:
MBUU is looking for a bullish PPO crossover just above its centerline. A breakout on heavy volume would be quite bullish, in my view. Also, MBUU is part of a very strong recreational products group ($DJUSRP)
AXTI:
AXTI belongs to the semiconductors ($DJUSSC), which also has been a very strong area of the market. AXTI is just beginning to show relative strength again and its PPO has crossed back over into positive territory. Volume is heavy, but the stock is battling overhead gap resistance between 5.04 and 5.25. Can we make the breakout? If so, it's no doubt bullish. AXTI is a member of our Aggressive Portfolio.
(Disclosure: I own AXTI shares)
LLNW:
LLNW reported quarterly results after the bell yesterday and beat both revenue and EPS estimates. It's also part of a strong internet industry ($DJUSNS). On my taped StockCharts TV show this morning, I mentioned that LLNW could see another test of 6.75 (hit a low of 6.50 this morning), which it did. A strong finish here today would be bullish.
ACTG:
Another stock breaking out on heavy volume in a solid industry - business support services ($DJUSIV). The straight move up on massive volume in June produced a flag pole, and the recent sideways consolidation represents a bull flag. ACTG broke out yesterday on a closing basis and exploded earlier this morning. It's since pulled back a bit. A sustained breakout here, however, could lead to much higher prices.
(Disclosure: I own ACTG shares)
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:
Tuesday, July 21:
NVS, KO, TXN, PM, LMT, ISRG, PLD, CNI, UBS, SNAP, COF, PCAR, IBKR, AMTD, AGR, TER, SYF, WRB, UAL, IRBT
Wednesday, July 22:
MSFT, TSLA, TMO, CSX, ABB, BIIB, LVS, CP, HCA, KMI, CMG, APH, IQV, SU, ALGN, RCI, NDAQ, EFX, MKTX, CHKP, NTRS, BKR, DFS, DOV, SUI, NVR, TDY, KEY, ICLR, WHR, KNX, SLG, MTH, SLM
Economic Reports
None
Happy trading!
Tom