EB Daily Market Report - Monday, September 21, 2020
Executive Market Summary
- Futures were significantly lower to begin what is normally a bearish week historically
- There's been a big shift back towards growth stocks as the IWF:IWD ratio reverses course
- The Volatility Index ($VIX) is up 12% to nearly 29
- Materials (XLB) industrials (XLI), and energy (XLE) are all down more than 4%
- Technology (XLK) is being spared for the most part, down fractionally; it's the only sector down less than 1%
- The U.S. Dollar (UUP, +0.78%) is surging, putting more than usual pressure on materials and energy
- Many areas hit the hardest during the onset of the coronavirus are the same areas struggling today
- Airlines ($DJUSAR), hotels & lodging REITs ($DJUSHL), recreational services ($DJUSRQ), gambling ($DJUSCA), and hotels ($DJUSLG) are all down 5% or more
- Software ($DJUSSW) and computer hardware ($DJUSCR) are both up fractionally on today's session
Market Outlook
There've been two big developments today technically.
First, the S&P 500 tested its 20 week EMA after falling exactly 10% from its all-time high of 3588.11. 10% of that is 358.81. Therefore, a 10% correction would be 3588.11 minus 358.81, or 3229.30. This morning's intraday low was 3229.10. Currently, the 20 week EMA is at roughly 3229. I said last week we could see an intraweek move below this moving average and I still think it's quite possible, although I am putting money to work during this weakness. I expect to be fully invested, or close to it, by Friday.
Second, money is rotating strongly back towards growth. The IWF:IWD ratio hit the uptrend line that I annotated last week. For a refresher, you can clearly see a test of this trendline on Friday:
Should we see another short-term selling episode and this trendline is lost, I believe the 1.68 level will provide excellent support.
Sector/Industry Focus
Recreational services ($DJUSRQ) is having another very rough session. I do not like to begin trading a group until its relative weekly PPO moves into positive territory and its relative price action climbs back above both its 20 week EMA and 50 week SMA. The DJUSRQ is rolling over before any of those "breakouts" took place:
I'd be very careful with this group until it can negotiate the absolute price high in June. Also, don't always assume that a rising PPO is a "bullish" thing. A rising PPO beneath the centerline is an indication that bearish momentum is slowing. Don't confuse that with bullish momentum. A rising PPO above the centerline suggests strengthening momentum.
ChartLists
Please note that the Short Squeeze ChartList was updated this weekend, so you can now go to our website and download that ChartList into your StockCharts.com account, assuming that you're either an Extra or Pro member. If you're not a member at StockCharts, you can still view all the charts on this ChartList, one by one. You simply cannot download them into an account, because you don't have one.
In addition to Stitch Fix (SFIX), which was provided this morning in the EB Digest, I'd also keep a close eye on Bed, Bath & Beyond (BBBY). Its short % of float rose to 61% from 58% last month. A breakout above 13 with increasing volume could trigger panic buying:
One other Short Squeeze ChartList stock to watch is SmileDirectClub, Inc. (SDC). It's fallen back recently to test its price support and its rising 20 day EMA. But there have been some positive technical developments here of late. I would want to make sure that SDC remains above 10 on a closing basis:
Relative strength and volume trends have both been strong and improving. A move back up and another breakout would likely send plenty of shorts running for cover. SDC has 39% of its float short right now.
Earnings Reports
Here are the key earnings reports for the next two days, 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.
Monday, September 21:
None
Tuesday, September 22:
NKE, AZO, NEOG, KBH, SFIX, ACB
Economic Reports
None
Happy trading!
Tom