EB Daily Market Report - Thursday, August 20, 2020
Executive Market Summary
- Futures were weak throughout the morning and we saw all of our major indices open lower
- The NASDAQ has regained its footing, however, and is leading once again today; the S&P 500 clings to a fractional gain, while the Dow Jones is flat
- The 10 year treasury yield ($TNX) is down 3 basis points to 0.64% after two disappointing economic reports were released earlier this morning
- The dollar (UUP) gapped higher, but retreated into negative territory
- Real estate (XLRE, +1.16%) is leading the action, along with technology (XLK, +0.86%) and communication services (XLC, +0.75%)
- Energy (XLE, -1.89%) cannot catch a bid and is the obvious laggard on the session; the lower TNX is also impacting financials (XLF, -0.77%)
- Earnings are sending two stocks in different directions: SNPS is up 6.45% and is the best S&P 500 performer, while EL has lost 6.73% and is the S&P 500's worst stock today
Market Outlook
One ratio that I watch daily is one that I discuss frequently. It's the relationship between growth and value stocks (IWF:IWD). So long as this ratio trends higher, we want to be heavily represented by growth stocks. Of course, the biggest winners have been the large cap stocks like AAPL, AMZN, and TSLA. But there are plenty of others as well and we've tried to litter our portfolios with them. Here's the latest breakout on the IWF:IWD:
I don't have a crystal ball and I'm not sure how long this growth party lasts. But I do know the conditions currently present support this uptrend. I'm sticking with what the market is saying.
Sector/Industry Focus
I'm very encouraged to see software stocks ($DJUSSW) regain their relative strength. That is certainly contributing to the growth vs. value breakout that I pointed out above. Here's a long-term weekly look at the recent reversal in software and helps to explain why I decided to put 5 software stocks into our portfolios last night:
Software remains one of the biggest beneficiaries of the pandemic as many component stocks have been able to rapidly grow their earnings in a low interest rate environment. But perhaps even more important, money has rotated away from areas devastated by the pandemic, further supporting groups like software.
ChartLists
I ran a scan today of stocks with RSIs between 40-45 and SCTRs above 90. I ran this against our Strong Earnings ChartList (SECL), Strong Future Earnings ChartList (SFECL), and Strong AD ChartList (SADCL). Here are the stocks that were returned:
MRNA, VXRT, QDEL, RVP, GNMK, KODK, VERI, LOVE, VBIV, LRN, CWH, CHGG, MGNX, SWBI, NH, VUZI, BCLI, TBIO, ANGI, OSUR, BSGM, LIVX, PRPL, UMC, REGN, ACTG, SLP.
Of these, here are a few that I find interesting:
LOVE:
LRN:
SWBI:
SLP:
With RSIs in the low 40s and all being in uptrends, I believe these are all solid potential pivot points. LRN might see a little bit more downside to reach that recent low, but the other 3 appear to already be testing key support in the form of price or moving average.
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 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.
Thursday, August 20:
BABA, EL, ROST, KEYS, MLCO, BJ
Friday, August 21:
PDD, DE, FL
Economic Reports
Initial jobless claims: 1.11 million (actual) vs. 0.96 million (estimate)
August Philadelphia Fed survey: 17.2 (actual) vs. 21.5 (estimate)
Happy trading!
Tom
Happy trading!
Tom