EB Daily Market Report - Tuesday, July 28, 2020

Tom Bowley - July 28, 2020

Executive Market Summary

Futures were lower this morning, but our major indices are recovering and attempting to turn green
Small caps ($SML) are showing a bit of leadership this morning
The dollar (UUP) is attempting to stabilize ahead of the FOMC meeting; the policy statement will be issued Wednesday at 2pm ET - no change is rates is anticipated
Gold ($GOLD) is higher by just under 1%; silver ($SILVER) is up fractionally as well
The 10 year treasury yield ($TNX) is down a basis point and continues to hover around 0.60%
Economic reports this morning were slightly disappointing
Defensive groups lead today's rally: utilities (XLU) and real estate (XLRE) are the only groups up > 1%
Materials (XLB) and energy (XLE), both struggle to find buyers with the dollar more stable
Gambling stocks ($DJUSCA), defense ($DJUSDN), and airlines ($DJUSAR) are showing strength

Market Outlook

I don't mean to beat a dead horse, but I'm watching the U.S. Dollar Index ($USD) very closely. Here's the long-term view of the USD, showing the key trendline support that it's now attempting to hold:

There is no doubt that a full-fledged breakdown in the USD would benefit materials. There's a lot of history that shows that materials stocks outperform during a weak dollar environment. But we saw a period of materials outperformance in 2016-2017 as the USD fell from the stratosphere. However, the long-term USD uptrend level held and those moving into materials stocks as we began 2018 likely did not enjoy the result. We don't know right now if this is a breakdown or not. BUT, we do know that interest rates are a key driver of currencies and the Fed is kicking off a 2-day meeting today with a policy statement due out on Wednesday at 2pm ET. Let's see how the USD reacts to this meeting. If we see a big reversal to the upside on the USD during the balance of the week, we could be marking a long-term bottom in the USD, which would be a big negative for materials stocks. If the USD continues trending lower, however, I believe the argument for trading materials stocks to be a sound one.

Sector/Industry Focus

Soft drinks ($DJUSSD) are outperforming again today after recently breaking out of a 3-4 month-long consolidation period:

This is a group that's badly lagged during the pandemic, so I'm certainly not all in on the space. However, the breakout in absolute terms and the recent relative strength at least is beginning to paint an improving picture. The best reward to risk foray into soft drinks would be on a pullback to test that rising 20 day EMA. Coca Cola (KO) appears to be a better candidate than Pepsi (PEP) at the moment, but the best in the group, in my opinion, is Monster Beverage (MNST), which shows tremendous relative strength:

ChartLists

On a down day, I thought it would be interesting to see which of our Strong Earnings ChartList stocks were breaking to 52 week highs. There are 12 today as of 11:45am ET:

OMI, CELH, HEAR, LOW, BGS, AN, AXNX, HAIN, MNST, CAG, VRSK, STKL

Nearly all of these stocks have been in uptrends for awhile. That increases the chances of failure if you jump in now with overbought conditions. However, I do like AXNX, which is just making a breakout after consolidation. It's in the medical supplies ($DJUSMS) area, which is threatening a breakout of its own. AXNX is a leader in this space and I believe today's rally is the real deal. Here's the chart:

(Disclosure: I own shares of AXNX)

I bought half a position and I plan to buy the other half if we pull back to 20 day EMA support. My initial target is 50, though I'll evaluate the stock and its industry and relative strength over the course of the next few weeks to decide whether to hold longer. AXNX does report earnings in a little more than a week (August 6th).

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 28:

V, PFE, AMGN, MCD, MMM, SBUX, SPGI, MDLZ, MO, AMD, CB, ECL, SHW, RTX, ROP, CNC, DXCM, EBAY, MSCI, CMI, CSGP, AFL, ROK, FTV, DHI, GLW, DTE, EDU, EIX, EQR, LH, AKAM, YNDX, MXIM, TRU, ZBRA, SSNC, BXP, WAT, MLM, MASI, OKE, STX, PKI, OMC, WAB, CHRW, CE, MPWR, UDR, BEN, LW, PKG, PEGA, JNPR, AMED, PII, ASH, HOG, WH, HUN, LSCC, NEO, UNM, IRDM, PRLB, TENB, FEYE, JBLU, BYD, ATRC, AUDC

Wednesday, July 29:

PYPL, SNY, SHOP, QCOM, BA, NOW, CCI, ANTM, EQIX, ENB, ADP, CME, GE, BSX, NSC, LRCX, SPOT, GD, EPD, GM, ETN, CTSH, ORLY, TROW, TEL, YUM, TT, ADM, CERN, AVB, ETR, YUMC, AMP, GRMN, AEM, GIB, ROL, HOLX, TDOC, HES, TYL, DRE, QRVO, MAA, ACGL, FICO, DT, URI, CGNX, AVTR, KGC, CXO, PTC, CONE, SMG, IPG, MKSI, APA, UTHR, CCJ, WING, ASGN, SAIA, WERN, AAN, AM, PS, MTSI, MMSI, R, CRTO

Economic Reports

May Case-Shiller HPI: +0.0% (actual) vs. +0.5% (estimate)

July consumer confidence: 92.6 (actual) vs. 95.7 (estimate)

Happy trading!

Tom