EB Daily Market Report - Wednesday, September 30, 2020

Tom Bowley - September 30, 2020

Today's Event

We will be hosting a "Q4 Market Outlook" webinar today at 4:30pm. Room instructions will be sent separately. Also, you can join the room from our member home page. Hope to see you there!

Executive Market Summary

Futures were down overnight, but rallied this morning and our key indices opened higher
Equities strengthened throughout the day before seeing some profit taking in the past hour
The 10 year treasury yield ($TNX) has rallied 4 basis points to 0.69% on the heels of solid economic reports
The ADP employment report was much stronger than expected, as was the September Chicago PMI
All eyes will be on Friday's nonfarm payrolls, which is ultimately watched more closely than the ADP report
Health care (XLV) and consumer staples (XLP) are leading today, while industrials (XLI) and energy (XLE) represent the only two sectors in negative territory
Micron Technology (MU) beat estimates but provided weak guidance and it's the worst S&P 500 performer today
American Express (AXP) leads the Dow Jones higher as 28 of 30 components have gained ground

Market Outlook

Bull markets can reside during a period of a strengthening dollar (UUP) or a weakening one. The 2002-2007 bull market occurred with a weak dollar. The current bull market has occurred during a strengthening dollar. However, the rotation within the bull market is most definitely impacted by the direction of the dollar. Throughout the current bull market (since 2011), we've enjoyed a mostly rising dollar. That has provided headwinds to two key sectors - energy (XLE) and materials (XLB). The weakening dollar since March, however, has given materials new life as the XLB outperformed. Unfortunately, even a weakening dollar hasn't overcome an oversupply of crude, so energy has remained weak.

I'm watching the short-term on the dollar, however, because it's showing signs of resuming the 9 year strength. After breaking above both its 20 day and 50 day moving averages for the first time since May, it's held both of those moving averages, thus far, and we've seen a "golden cross" where the short-term 20 day EMA has crossed back above the longer-term 50 day SMA:

The daily PPO has turned positive and note that the XLB began outperforming just as the dollar printed that topping black candle. The XLB then began underperforming just as the dollar broke back above its moving averages and the golden cross printed.

So while a bull market can handle either a rising or falling dollar, certain areas of the market are significantly impacted by the direction of the greenback.

Sector/Industry Focus

Software ($DJUSSW) has been a very important industry group for the stock market over the past several years. Strength in this group has helped to carry stock prices higher. The group remains in consolidation mode since that September high, but it is threatening to clear important short-term resistance:

Since the early-September swoon, the highest reaction high candle body (open or close) has been 4105.85. You can see above that, at the time of this writing, the DJUSSW was at 4106.29. A strong final hour would certainly be much more bullish than the alternative, so let's see how this group closes today.

ChartLists/Strategies

The Strong Earnings ChartList (SECL) and Raised Guidance ChartList (RGCL) have both been updated on our website and are available for viewing/download. On the left navigational panel, look for "Members", then "ChartLists". Scroll down the page to find these two ChartLists. REMEMBER: In order to download these ChartLists, you'll need to provide the specific password that we provide for that ChartList. (It is NOT your EarningsBeats.com password, nor your StockCharts.com password.)

Today, I looked for high volume stocks. So I used the high volume scan syntax that's available on our website and adjusted it. It's preset to find stocks that have traded 0.4 of their normal average daily trading volume, so I typically run this scan around 10:00-10:15am EST, 30-45 minutes after the market opens. Since it was after 2:00pm when I ran this scan today, I chose to set the volume to 1.5x normal average daily volume. I ran this scan against our updated SECL and the following stocks were returned:

DDOG, JKS, LZB, REGI, SAIL

Let's narrow it down. I just discussed the short squeeze taking place on JKS yesterday and it's up another 3.34% today. DDOG is a huge winner today and it's making a big breakout on massive volume. SAIL tried to do the same thing, but has pulled back and currently should be considered a false breakout, pending action in the final hour of trading:

DDOG:

DDOG is breaking out vs. its software peers and vs. the S&P 500. Software ($DJUSSW) is beginning to strengthen as well. It would be difficult to bet against this one.

SAIL:

It's actually a very similar story to DDOG. The only difference is that right now SAIL is not holding its breakout. A false breakout can be a problem near-term, though I'd definitely expect to see this one higher in time.

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.

Wednesday, September 30:

Thursday, October 1:

PEP, STZ, CAG, BBBY

Economic Reports

September Chicago PMI: 62.4 (actual) vs. 52.1 (estimate)

September ADP employment report: 749,000 (actual) vs. 650,000 (estimate)

Q2 GDP (Final Estimate): -31.4% (actual) vs. -31.7% (estimate)

August pending home sales: +8.8% (actual) vs. +3.1% (estimate)

Happy trading!

Tom