EB Daily Market Report - Tuesday, September 22, 2020
Executive Market Summary
- Futures were slightly higher as Wall Street opened for business
- The relative performance of growth stocks (IWF) is jumping again relative to its value (IWD) counterparts
- Existing home sales for August were better-than-expected; homebuilders ($DJUSHB) have jumped more than 3%
- Real estate (XLRE, +1.66%), consumer discretionary (XLY, +1.53%), and communication services (XLC, +1.40%) are the leading sectors today
- Financials (XLF, -1.25%) lag once again as the 10 year treasury yield ($TNX) is flat
- Commodities are mostly under pressure as the U.S. Dollar (UUP) trades above its 50 day SMA for the first time since mid-May
- Nike (NKE, +2.72%) leads the Dow Jones today as it gets set to report quarterly results after the bell
- Twitter (TWTR, +5.52%) and Amazon.com (AMZN, +4.36%) are among the best S&P 500 performers
Market Outlook
I know that plenty of traders/investors still believe that gold ($GOLD) is a great place to be. Don't count me in that group. Gold tends to outperform during bear markets and periods of extreme fear. We're in neither of those now, so I personally would avoid gold. The following chart shows that gold has been underperforming the S&P 500 ever since the VIX topped out back in March:
Yes, the absolute price has been climbing, but if it's underperforming the S&P 500, is gold a good investment? I don't think so. If I'm wrong, and the S&P 500 takes another hit later this year or in 2021, then gold will have a chance to shine. I simply don't believe that will happen. I'll pass on gold.
Sector/Industry Focus
Home construction stocks ($DJUSHB) have rebounded nicely off Monday's intraday lows. On a 3 month hourly chart, you can see that this industry continues to consolidate, but watch that 1232 level. A close above that would represent an all-time high close and certainly support higher equity prices in Q4:
While we're waiting on the absolute price breakout, notice that the relative strength breakout is already taking place. This remains an excellent area of the stock market to trade and/or invest.
ChartLists
Please note that I've updated both the Strong AD ChartList and the Weak AD ChartList. These ChartLists had not been updated since April 2020. The reason was simple. We wanted to keep track of the companies that benefited (Strong AD) and suffered (Weak AD) early from the pandemic. After 6 months, a lot has changed technically, so I ran a scan against both ChartLists. For the Strong AD, stocks remained on this ChartList IF they currently showed a SCTR score above 80 AND I felt the AD line remained strong or was strengthening. Likewise, for the Weak AD, stocks remained on this ChartList IF they currently showed a SCTR score below 20 AND I felt the AD line remained weak or was weakening. Both ChartLists lost about 60-70% of its original stocks. I will likely add new Strong and Weak AD ChartLists in the future that take into account all current SCTRs and AD lines. I'm still evaluating what criteria I want me to qualify for those ChartLists.
Stocks that have recently been featured as Short Squeeze candidates have performed exceptionally well, for the most part. The latest, from Monday morning's EB Digest newsletter, was Stitch Fix (SFIX), which is up more than 6% today. I want to mention that SFIX reports its quarterly results after the bell today. Which way it goes after reporting is anybody's guess. Gamestop (GME) fell 20% after its earnings, then rallied back an amazing 75% in the past 7 trading days! As I've said on many occasions, volatility on short squeeze candidates can be extreme. Workhorse Group (WKHS) saw volume accelerate on Monday morning during a selling episode and its weakness continues today. I like the stock, but can't rule out a 20 day EMA test, currently at 23.63. Finally, Bed, Bath & Beyond (BBBY) is soaring today, up more than 12%, on exceptionally high volume as those on the short side are battling their emotions and trying to determine whether to cover (buy). If they begin to in droves, look out above!
Yesterday, 2 stocks from our Strong Earnings ChartList met the Downtrend Reversal scan criteria (5 consecutive days of lower highs, but yesterday printed a higher high). This can be the start of a significant uptrend and we like the stocks, of course, because they're on our flagship Strong Earnings ChartList. Both of these stocks will need to negotiate their declining 20 day EMAs, however:
Of the two, I think I prefer PZZA as restaurants & bars ($DJUSRU) appear to be gaining absolute and relative strength. Broadline retailers ($DJUSRB) have remained strong, but OLLI seems to be falling out of favor. In both cases, we want to see the 20 day EMAs negotiated on a closing basis. That would be our confirmation that bottoms are likely in.
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.
Tuesday, September 22:
NKE, AZO, NEOG, KBH, SFIX, ACB
Wednesday, September 23:
GIS, CTAS, FUL, WOR, JKS
Economic Reports
August existing home sales: 6,000,000 (actual) vs. 5,965,000 (estimate)
Happy trading!
Tom