EB Daily Market Report - Thursday, August 27, 2020

Executive Market Summary

• Futures were higher across all of our major indices today
• Strength today resides in the Dow Jones on a relative basis with Walmart (WMT) attempting to break above the high it set earlier this month
• Money is rotating OUT of the bond market, with the 10 year treasury yield ($TNX) rising 6 basis points to 0.75%, its highest level since mid-June
• This surge in the TNX is benefiting financials (XLF, +2.03%), specifically banks ($DJUSBK, +2.56%)
• The dollar (UUP) has been extremely volatile, opening lower, then surging, and now back close to the flat line
• 8 of 11 sectors are higher, though communication services (XLC, -0.97%) and consumer discretionary (XLY, --0.25%) are not among them
• Recreational services ($DJUSRQ) and airlines ($DJUSAR), two major underperformers in 2020, are two of the best industry groups today
• The Fed shifted policy a bit, indicating that it would allow inflation to run ahead of its 2% target for "some time" following periods when its run below that target; this policy would help to keep rates low

Market Outlook

Here's an updated view of the NASDAQ 100's ($NDX) 60 minute chart for the past four months to get a sense of how stretched we are:

Any time the PPO rises to that 0.75 to 1.00 level or above on the 60 minute chart, it suggests we could be getting a bit stretched in the near-term, requiring consolidation or at least a brief period of selling. I've marked 12 such periods above with red arrows and after 9 of them, we saw at least 2-3 days of selling that followed. There were 3, however, that barely saw even a pause before continuing higher. And the common denominator is that NONE of the 12 marked a major top as it really didn't take long for the NDX to reach new highs. We're clearly at the upper end of this multi-month channel with the hourly PPO having just pushed above 1.0. While it certainly guarantees us nothing, the odds have increased that we could see some profit taking sooner rather than later.

Sector/Industry Focus

Broadcasting & entertainment ($DJUSBC) has begun acting much more bullishly, but it's far from being a favored industry group:

It's always a good sign to see a group rising with successful 20 day EMA tests and we've now seen at least two of those. That tells me the group is trending higher. Unfortunately, it's trending higher mostly because of the overall market, not because this group is a favorite of Wall Street's and that's a big difference. The DJUSBC remains in a long-term relative downtrend. Yes, the relative strength has improved, but until we clear that June relative high, I wouldn't be overly impressed.

A rising tide may lift all boats, but that doesn't mean you're riding on the fastest boat.

ChartLists

Watching for breakouts on Short Squeeze ChartList stocks makes a lot of sense. When you see a breakout above previous highs and volume accelerates, the chances increase significantly that a "short squeeze" could be underway. Short squeezes result from those holding positions short having to buy back their borrowed shares as their losses mount. Here are two recent examples:

FIZZ (50.32% of float short):

GOGO (36.37% of float short):

I want to mention that catching short squeezes can be extremely rewarding with sizable, quick profits. But there's also a lot of added risk as big hedge funds that specialize in shorting are many times on the short side. I would never buy a Short Squeeze ChartList stock with the idea that it's a long-term hold. That would not be my strategy at all. I'd get in and if the stock did surge initially, I'd likely sell half very quickly to lock in profits and lower risk. Some of these stocks breakout and keep on flying, while others break out short-term, but then sell off again, failing to hold at key price and moving average support levels. So.......if you do buy one of these stocks, simply have a plan in place and I'd stick to it. Always have a stop ready, either physical or mental.

Here's one SSCL stock that's at a very key resistance level. A breakout here with expanding volume could lead to a big surge:

SIG (32.52% of float short):

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 27:

TD, VMW, DG, DELL, WDAY, VEEV, HPQ, OKTA, DLTR, MRVL, PAGS, BURL, ULTA, BILL, OLLI, GPS, COTY, FLWS, ANF

Friday, August 28:

BIG, HIBB

Economic Reports

Q2 GDP (2nd estimate): -31.7% (actual) vs. -32.9% (estimate)

Initial jobless claims: 1.01 million (actual) vs. 0.99 million (estimate)

July pending home sales: +5.9% (actual) vs. +1.5% (estimate)

Happy trading!

Tom