EB Daily Market Report - Monday, August 10, 2020

Today's Event

Our "Top 10 Stocks - Sneak Preview" event is here again! I'll spend time this afternoon discussing the methodology for selecting the portfolio stocks and I'll also discuss past performance. If you're not familiar with the portfolios, you do not want to miss this event. It begins at 4:30pm ET and you can access the webinar room from our home page.

Also, we have a limited-time MEMBERSHIP SPECIAL that we'd like to offer all of our members this week. It was one year ago today that I announced I was leaving StockCharts.com and returning as EarningsBeats.com's Chief Market Strategist. It's turned out to be a great decision, mostly because of the overwhelming support I received from all of you. So tonight I'll announce a "1 - Year Anniversary Special" that I believe you'll want to take advantage of.

If you cannot make today's event, no worries. We record all of our events and we'll make sure you get a copy of the recording once it's ready. And the Anniversary Special will last for a few more days.

Special Guest Appearance on "Your Daily 5"

Earlier today, I provided 5 Charts for the StockCharts.com TV audience to watch, including transports ($TRAN), delivery services ($DJUSAF), and a few others. If you'd like to view that show (10 minutes), you can CLICK HERE.

Executive Market Summary

• Futures were higher this morning to open a fresh new week, particularly so on the Dow Jones stocks
• It's been a bifurcated day as the Dow Jones rallies more than 300 points, while the NASDAQ remains in negative territory
• Energy (XLE, +2.53%) and industrials (XLI, +2.38%) are today's big winners
• Recent leaders like communication services (XLC, -0.48%) and technology (XLK, -0.40%) lag by a wide margin
• Health care (XLV, -0.51%) is today's biggest loser as biotechs ($DJUSBT) drop more than 1%
• Silver ($SILVER) jumps another 6% to its highest level in more than 7 years
• Royal Caribbean Cruises (RCL) says 2021 cruise demand is remarkable; stock jumps 9.6%
• 10 year treasury yield ($TNX) rises for 2nd straight day and challenges its overhead 20 day EMA

Market Outlook

Industrials (XLI) are finally breaking above their June 8th high and the group is being powered higher by a surging transportation index ($TRAN):

The significance here is that industrials have lagged the S&P 500 for several months and they've been a major drag. But wide participation in bull market rallies characterizes a true bull market, and the XLI is adding to the secular bull market theory. I've had few doubts all along, but for those that have been doubting this rally, a breakout in industrials should leave you feeling a bit more bullish - I hope.

Sector/Industry Focus

We get spoiled when we see our favorite sectors, industry groups, and stocks move up day after day with nary a pullback. But it's important to understand that pullbacks and consolidation are a necessary part of establishing a base before powering forward to new highs. I'd actually welcome a bit more selling, especially on the NASDAQ. Today, we're seeing weakness from communication services (XLC), but Friday we were trading at an all-time high. The following is the daily and weekly charts on the XLC simply to gain a bit of perspective as to where pullbacks should not only be tolerated, but also welcomed:

XLC - daily chart:

XLC - weekly chart:

It's important to note that a rising 20 week EMA test if one of the best entry signals during a secular bull market advance. That would be down closer to 55. If the stock market paused for a bit this summer and the XLC fell back to test its 20 week EMA, it would actually be quite healthy. Having said that, I believe there's too much upside momentum to see that far of a drop. We might see a 10% correction later this year or early next, but I'd be surprised to see it any time soon.

ChartLists

The Short Squeeze ChartList (SSCL) will be updated in about a week or so, but for now, here are several stocks that definitely are making their short sellers very, very nervous:

BBBY:

I like BBBY because (1) it belongs to a strong industry group - specialty retailers ($DJUSRS), and (2) it's actually broken out vs. its specialty retailer peers. Note also that the volume hasn't really expanded significantly, so short covering probably hasn't begun in earnest - at least not yet.

SIG:

The volume has begun to increase, but unlike BBBY, SIG is not exactly a leader in apparel retail ($DJUSRA) and the group as a whole, hasn't performed well. I'd be more skeptical of this breakout because of the weak industry group and the fact that SIG hasn't broken out relative to its peers.

SPWR:

This is a big of a mixture of the two previous charts. Renewable energy ($DWCREE) has been an extremely strong group, and that is no doubt helping to carry SPWR higher. But when I look at that relative strength line vs. its peers, SPWR forged a relative breakout, but then gave it up. So the interest in the stock, in my opinion, relates more to the strength in renewable energy than it does to SPWR's accumulation. In fact, SPWR's AD line recently set a new 52 week low. I'm not bearish SPWR, but if I traded it, I'd take profits more quickly.

Of the 3 above, I believe BBBY has the best staying power during this potential short squeeze. We'll see.

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, August 10:

DUK, MELI, GOLD, MAR, TME, PPL, NTR, SPG, OXY, IFF, BKI, RCL, NVAX, ANGI, CGC, RUN, QLYS, SDGR, MNTA, RAMP, JCOM, TGNA, WKHS, TLRY

Tuesday, August 11:

SYY, XP, BNTX, BR, NIO, TXG, LITE, HUYA, VIR, VIAV, GOOS, LRN, OSPN

Economic Reports

None

Happy trading!

Tom