EB Daily Market Report - Monday, October 5, 2020

Tom Bowley - October 05, 2020

Executive Market Summary

Futures were strong after the weekend as we opened on a very positive note
All our major indices are higher today, led by strength in NASDAQ shares
The IWF:IWD (growth vs. value) ratio has been flat to slightly higher much of the day
All 11 sectors are higher, led by energy (XLE, +2.63%) and health care (XLV, +1.97%)
Real estate (XLRE, +0.38%) and consumer staples (XLP, +0.71%) are the only two sectors failing to gain at least 1% today
Renewable energy ($DWCREE, +6.45%) and transportation services ($DJUSTS, +5.91%) are the two best industry performers
President Trump has announced he'll be leaving Walter Reed National Military Medical Center this evening, lifting biotech stocks, particularly Regeneron Pharmaceuticals (REGN, +7.89%)
Home construction ($DJUSHB) and cruise lines are two areas failing to rise with the overall market

Market Outlook

I'm growing more and more confident that the S&P 500 low that we saw in September at 3209 will not be breached in Q4. I believe the worst of the selling is behind us. We could certainly see more chop in the days and weeks ahead, but further consolidation would not be a bad thing. In my opinion, consolidation becomes a worst-case scenario, while surging back to the early September high of 3588 becomes much more of a possibility if the S&P 500 can clear the 3425-3450 area. In my September 11th ChartWatchers article, "Here are 3 Ways to Calculate S&P 500 Downside Targets", I pointed out that I expected to see a bottom somewhere in the 3200-3300 area and provided a chart showing two possible lower channel lines to watch for a reversal. Here's the update of that chart:

I only changed two annotations. First, I added the red vertical line to mark where we were on the chart at the time of my article. Second, I extended the bottom channel line out through today so that you can see the S&P 500 bottomed exactly at that trendline to form a perfect channel. That's why I connect highs and then drag those lines lower looking for possible pivot points on lower channel lines. It was a perfect example of using technical analysis to help manage risk and to identify excellent reward-to-risk entry points.

Sector/Industry Focus

Transportation services ($DJUSTS, +5.91%) is attempting to make a very important breakout above its July and September double top:

The DJUSTS certainly is not a leading industry group, but it's still important technically to make an absolute breakout. That could lead to relative strength. A lot will depend on how the group closes this afternoon, but at least be aware that we could be seeing a very significant breakout that could lead to further strength in October.

ChartLists/Strategies

Given the breakout in Transportation Services ($DJUSTS), I wanted to show you how you can run a scan against all of our ChartLists, specifically searching for transportation services stocks. Here's the syntax you could use:

That simply searches all of our ChartLists for any stocks that belong to the Transportation Services group. 3 stocks were returned as follows in SCTR order:

After looking at these 3 charts, CPRT is definitely my favorite as it's not only a leader in transportation services, but it also shows a very strong AD line that's breaking to a new high.

CPRT is showing improving relative strength and I'd call it a leader in this space, one that could most definitely benefit from a group breakout.

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, October 5:

None

Tuesday, October 6:

PAYX, LEVI

Economic Reports

September PMI composite: 54.3 (actual) vs. 54.4 (estimate)

September ISM services: 57.8 (actual) vs. 56.3 (estimate)

Happy trading!

Tom