EB Daily Market Report - Wednesday, July 22, 2020

Tom Bowley - July 22, 2020

Executive Market Summary

Futures were stronger on the NASDAQ this morning, but its underperformed after the opening bell for the 2nd straight session
All of our major indices are higher, albeit fractionally
The NASDAQ's monumental rise since the March low will either be justified or vilified later today as two giants - MSFT and TSLA - are on deck to report their quarterly results
Energy (XLE) is the worst performing sector today as energy names litter the bottom of the S&P 500 leaderboard
Strength is seen mostly in defensive areas as utilities (XLU) and real estate (XLRE) lead the action
A couple of not-so-great economic reports in housing has done nothing to curb the appetite of buying in home construction stocks ($DJUSHB, +5.25%), by far today's best performing industry
Crude oil ($WTIC) is down slightly, despite another drop in the U.S. Dollar (UUP)
Silver ($SILVER), however, continues its sparkling run to the upside

Market Outlook

The S&P 500 has really struggled since March to keep up with the NASDAQ. There are many groups responsible for this and one that comes to mind immediately is airlines ($DJUSAR). But the one that's most crucial, in my view, is the banks ($DJUSBK). Currently, the group is hanging onto channel support by a thread, but this is on an absolute basis. I'd like to see a little relative strength and the lower panel of this chart shows us that is simply is not the case right now:

Do you see that relative strength pop from mid-May to early-June? Just as the airlines have failed to participate in this latest S&P 500 advance, so too have the banks. It's a big reason why I'm not a fan of parking my money in the SPY (ETF that tracks the S&P 500). While some might view its diversification as a good thing, I do not. I want ALL of my money working for me, not just the 50% that's invested in leading sectors and industries.

Sector/Industry Focus

Semiconductors ($DJUSSC) are clearly helping to lead the charge to the upside. I mentioned AMD below as a component stock making a potential key breakout. Texas Instruments (TXN) broke out yesterday, just before posting EPS well ahead of consensus estimates, and fell back to test its rising 20 day EMA earlier. I look for TXN to rally off that 20 day EMA test. Here's a reprint of the longer-term picture of the DJUSSC using Andrews Pitchfork (showed this last week):

If you believe in channels, as I do, then you can see there's still plenty of upside left in this rally.

ChartLists

I reviewed our various ChartLists and found 3 very interesting developments:

AMD:

This one comes from our Strong Future Earnings ChartList (SFECL). AMD is in breakout territory, no doubt. And volume is heavy. So we're either seeing a major breakout or a major failure. In either case, I'm bullish AMD, but the latter failed breakout attempt would argue for a short-term pullback. Let's see how this one closes, but its relative strength has been ramping up ever since it recovered off the false breakdown back in late-June.

LOVE:

This one comes from our Short Squeeze ChartList (SSCL). I would only consider strong stocks on the SSCL as you're looking for a short squeeze. Many stocks on this ChartList are actually quite weak and would not garner any of my attention. But if you study the charts on this list, the more overbought the stocks get, the more short squeeze fuel carries the stocks higher. LOVE fits the bill. It's simply tacking onto very impressive recent gains. Short sellers are definitely feeling a pinch here and are being forced to cover.

CRWD:

This one comes from our Strong AD ChartList. I find it very interesting that as CRWD retreats to its 20 day EMA, its AD line (accumulation/distribution) breaks out to further highs. I believe CRWD continues to be accumulated by professionals. It's not usually a great idea to bet against incredibly strong momentum and I wouldn't bet against CRWD. In fact, I see the stock back at new highs sooner rather than later.

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:

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

Thursday, July 23:

INTC, T, DHR, UNP, APD, KMB, EW, BX, DOW, TRV, TWTR, CTAS, STM, HSY, VRSN, SWKS, FE, CTXS, FCX, WST, GWW, CMS, DGX, LUV, TSCO, FITB, IEX, MTB, NUE, POOL, ETFC, SIVB, PHM, ENTG, MANH, RHI, AAL, SKX, AN, MAT, EHTH, MXL, GTLS

Economic Reports

May FHFA house price index: -0.3% (actual) vs. +0.4% (estimate)

June existing home sales: 4,720,000 (actual) vs. 4,800,000 (estimate)

Happy trading!

Tom