EB Daily Market Report - Tuesday, August 4, 2020

Tom Bowley - August 04, 2020

Executive Market Summary

Futures were down slightly this morning, but we've seen our major indices trade off those lows much of the day
All of our major indices are currently trading near the flat line
A weakening dollar has led to outperformance by both energy (XLE, +2.49%) and materials (XLB, +1.57%)
The 10 year treasury yield ($TNX) is down 5 basis points to 0.52%
Gold ($GOLD) has soared $36 per ounce above $2000 for the first time in history; crude oil ($WTIC) is up more than 1% on the day
Asian markets were strong overnight, while European markets were mixed today
Renewable energy ($DWCREE, +5.98%) is leading energy on the heels of strong earnings reports from SolarEdge (SEDG, +13.46%) and Enphase (ENPH, +13.05%)
Several energy and materials names litter the S&P 500 leaderboard today, along with Advanced Micro Devices (AMD), which is up another 9.48%

Market Outlook

Transports ($TRAN) are on the cusp of a significant price breakout. However, I'd feel much more bullish about this development if we were seeing a rise in treasury yields. Instead, however, the 10 year treasury yield ($TNX) is tumbling today, down another 5 basis points to 0.52%. Transports should benefit from a strengthening economy ahead, but if we truly are expecting to see that, investors should be selling bonds, not buying them. The action in treasuries really isn't supporting the "stronger economy ahead" theory and is one of the more worrisome parts of the current market action. I'm bullish, but I'm trying to remain objective. I'll be a TON more bullish if the TNX ever begins to trend steadily higher. For now, here's the look at the TRAN, and also a look at the deteriorating TNX:

I remain very bullish U.S. equities, but I expect the stock market to struggle a bit more - until we begin to see bond traders recognize that the real risk is remaining in bonds while our economy strengthens. Currently, the consensus of bond traders is to remain skeptical and cautious. Seasonality also suggests that we be a bit cautious the transports:

The last 20 years shows a history where August has been the worst month for transports, rising in only 40% of Augusts the past two centuries, and also averaging a loss of 1.8% in August over that same period. Both of these numbers are calendar-month lows.

Sector/Industry Focus

Software ($DJUSSW) appears to have completed the right side of a cup and is pulling back today, putting downward pressure on technology (XLK). Gap support and the rising 20 day EMA intersect in the 3870-3875 area. I'd look for buying to resume in that area, should the group fall that far:

In a bull market, and after an uptrend, I begin to look for bullish continuation patterns. As the DJUSSW has now tested overhead resistance, it certainly could have completed a cup formation. If so, a bit of selling and consolidation to print a handle would be fine from a technical perspective.

ChartLists

The Strong Earnings ChartList (SECL) has been updated and is now available for download from our website. Just be sure to use the new password that we provide next to the link in order to access it.

For today, I ran our 20 day EMA scan on our website under "Scanning Strategies". I ran this scan against 3 of our ChartLists - the Strong Earnings ChartList (SECL), the Strong Future Earnings ChartList (SFECL), and the Strong AD ChartList (SADCL). 24 companies were returned as follows:

ADSK, AKAM, AWH, AXTI, BCC, CBB, DYAI, EDIT, FPRX, KOPN, LGND, MCFT, MEET, MRNA, MRTN, MYOK, NH, NSTG, SITE, SLP, SPSC, TRQ, VERI, WSM.

Of these, I found the following to be most promising:

BCC:

BCC has been a leading stock in a leading industry, so pullbacks to test key price support and/or moving averages represent solid entries, in my view.

EDIT:

Similar to BCC, EDIT is a leader among its biotech peers and it just broke a recent short-term downtrend with its PPO resting at centerline support. If this is the beginning of a new uptrend, the rising 20 day EMA should offer up nice support.

SITE:

SITE also is a strong leader in its space and it's not only testing its 20 day EMA, but it's also testing short-term price support.

VERI:

VERI has been a strong leader in the surging software area ($DJUSSW). But after a tremendous run, it's been consolidating and beginning to show signs of resuming its prior uptrend. This could be the start of the right side of a bullish cup.

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, August 4:

DIS, FIS, BP, ATVI, MNST, EXC, TWLO, EMR, VRSK, WEC, ALL, ZBH, PRU, MCHP, EC, TDG, BMRN, INCY, AME, KKR, ANET, PAYC, VMC, PXD, FOXA, WMG, PEAK, EXPD, FMC, LDOS, EXR, QGEN, IT, TECH, NKLA, AVLR, PPD, WU, MTCH, WYNN, BYND, ENPH, WRK, LEA, IPHI, INGR, RL, TREE, PLNT, CYBR, ALSN, MRCY, DVN, NUVA, LGIH, LPSN, GDOT, SPR, IGT, CDLX, BMCH, GLUU, EVER, MODN, GNMK, OMI

Wednesday, August 5:

CVS, REGN, FISV, SQ, HUM, HMC, SRE, PSA, TRI, MET, FNV, RMD, MRNA, AWK, ANSS, CVNA, MFC, W, WELL, CTVA, ABC, ROKU, ET, CDW, EVRG, ETSY, ATO, WDC, TEVA, BIP, SRPT, GDDY, HZNP, CDAY, TRMB, WTRG, RE, DISCA, CTL, HUBS, LYV, FSLY, CRL, IMMU, ZNGA, ALB, DOX, NUAN, BWA, OHI, PRGO, CF, WEN, FTDR, BLDP, ALRM, CWH, FVRR, SYNA, VSLR, PGNY, SPWR, FIT, INSG, APPS, INMD, ELF

Economic Reports

June factory orders: +6.2% (actual) vs. +5.2% (estimate)

Happy trading!

Tom