EB Daily Market Report - Tuesday, September 8, 2020
Executive Market Summary
- Futures were mixed last night, but turned decidedly negative this morning, especially on the NASDAQ
- The 10 year treasury yield ($TNX) fell 4 basis points today, back to 0.68% as the 6-month long consolidation continues
- The dollar (UUP) is showing strength, sending most commodities lower; energy hits its lowest level since April
- Crude oil prices ($WTIC, -7.59%) have tumbled to $36.75 per barrel
- The defensive utilities (XLU, +0.05%) is the only sector in positive territory today
- Technology (XLK, -2.93%) and energy (XLE, -2.58%) are the two weakest sectors
- Autos ($DJUSAU) and computer hardware ($DJUSCR) are two weak industries, led lower by TSLA and AAPL, respectively; the latter is the 2nd worst performer in the Dow Jones today
- Banks ($DJUSBK), broadline retail ($DJUSRB), and internet ($DJUSNS) are also lagging badly
- Airlines ($DJUSAR), a bright spot, are trying to close at a 3-month high
Market Outlook
As I mentioned in Friday's DMR, I didn't expect the selling was over. The selling last week in both Apple (AAPL) and Tesla (TSLA), two key NASDAQ leaders, began one day before the NASDAQ began selling off. The cracks in the foundation were set. Since then, we've seen a ton of short-term selling. I've stated on many occasions that the stock market is very inefficient in the short-term as prices move all over and in quite volatile fashion. Longer-term, however, leaders lead. That's why buying leaders during periods of selling makes great sense for those willing to accept higher levels of short-term risk.
I don't believe we're seeing mass distribution of growth stocks. Instead, I believe we're seeing mass manipulation. Just like in March, all of today's selling came at the opening bell. In fact, since last Wednesday's close, the QQQ has fallen roughly 28 bucks, but more than 17 of that has been at the opening bell. That tends to create panic and lead to more selling, so as I mentioned on Friday, I'd slowly build positions on weakness from any cash build from last week's warnings. I fully expect we'll see another pre-earnings run higher in equities, but we'll likely have to wait until later this month to get that started. Short-term, here's a reprint of the NASDAQ hourly chart from Friday. It continues to trend lower and remains beneath its declining 20 hour EMA:
The heavy volume that's accompanying this selling tells me we're likely going to see further bouts of selling in September. It definitely could get more painful in the short-term, before equities begin to turn higher again.
Sector/Industry Focus
Clothing & accessories ($DJUSCF) is attempting to make its first meaningful relative PPO breakout above the zero line since Q4 2018. We've seen absolute strength building since the March low, but the group hasn't always been leading the S&P 500 on the way back up. That's changed the past 6 weeks and the DJUSCF is approaching a major relative breakout, one that hopefully will clear the June relative high:
The DJUSCF is bouncing off its absolute price support, but the bigger question is whether the DJUSCF can show relative leadership. It could fall on the shoulders of Lululemon Athletica (LULU), which reports its latest quarterly earnings results after the closing bell today.
ChartLists
First, I've just about completed a NEW Strong AD ChartList, taking into account those stocks that are showing strong accumulation the past few months. This new list actually includes a handful of clothing & accessories stocks.
Given the possibility of a LULU-induced breakout in the DJUSCF, I decided to look at charts within this space on all of our various ChartLists to find potential trading candidates. Here were a few possible candidates:
HBI:
I wrote about this one on Friday, so check out that DMR for details. Thus far, however, HBI is holding onto key support and rising on an otherwise dreary market day.
SFIX:
SFIX has tested overhead price resistance near 29.50 on 3 separate occasions now. A breakout would be technically significant. Also, it's important to note that SFIX has a very high level of short interest. Based on "short percentage of float", SFIX's 40.97% as of August 15th ranks it 15th among all U.S. equities. Therefore, a breakout could lead to a short squeeze that sends the shares rapidly higher. I'd either wait to see that breakout or consider buying it on a rising 20 day EMA test.
VRA (from the NEW Strong AD ChartList):
VRA clearly was buoyed by the massive volume last week that accompanied its huge advance. But even prior to that, it appeared that VRA was clearing relative downtrend lines. I do expect increasing volatility in VRA shares, but there's no doubt a stock like this should benefit from more money pouring into its industry group. We could see just that if LULU provides a solid report and outlook later today.
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.
Tuesday, September 8:
LULU, COUP, WORK, CASY, HQY, ABM, CVGW
Wednesday, September 9:
ZS, HDS, RH, NAV, VRNT, AEO, AVAV, GME
Economic Reports
None
Happy trading!
Tom