EB Daily Market Report - Tuesday, October 6, 2020
Upcoming Events
Make sure you check out our "Event Calendar" in the "Our Service" area on our website. We've recently made some additions and changes, so if you haven't checked it out lately, you should do so. We have an EXCELLENT event this Saturday, "The Power of StockCharts Tools with EarningsBeats Research Engine." Grayson Roze, VP of Operations at StockCharts will be joining me and he'll update everyone regarding StockChart's ACP (Advanced Charting Platform). But we have much more planned, so be sure to check it out, along with all of the other events that we've scheduled.
Executive Market Summary
- Futures were mixed overnight as the Dow Jones was set to lead at the opening bell
- Small caps ($SML) and mid caps ($MID) are the leaders today with other key indices near the flat line
- Crude oil ($WTIC) has jumped more than 3% and is back above $40 per barrel
- It's an odd leaderboard with utilities (XLU, +1.50%), financials (XLF, +0.97%), and industrials (XLI, +0.91%) the top 3 sectors
- Communication services (XLC, -0.58%) is one of two sectors in negative territory - health care (XLV, -0.20%) is the other
- Recreational services ($DJUSRQ, +4.40%) and hotels ($DJUSLG, +3.08%) are performing well today
- Renewable energy ($DWCREE, +4.69%) is the best performing industry group for a 2nd straight day
- Cruise lines are atop the S&P 500, while Goldman Sachs (GS) and IBM lead the Dow Jones component stocks
Market Outlook
When you're evaluating the stock market, there's so much information to be gleaned from following transportation stocks ($TRAN). History tells us that the performance of transports is very closely and positively correlated with the S&P 500. When transports begin to roll, so too does the S&P 500. We've just seen the 2-year downtrend end on transports and they're on the verge of breaking to an all-time high. I believe this is extremely bullish for U.S. equities:
The blue-shaded area highlights the positive correlation. It tells us that when transports are struggling, so too is the benchmark S&P 500 index. But when transports end that consolidation and breakout, check out the gains made on the S&P 500. The two years, 2013 and 2014, produced nearly a 50% return in the S&P 500 after transports broke out. We saw a similar result in 2017 and 2018. Now here in 2020, transports are starting what I believe will be another solid leg higher, supporting my secular bull market theory.
Sector/Industry Focus
Medical supplies ($DJUSMS) broke out in early-September and has since been consolidating....until perhaps today. The DJUSMS is up more than 1% on today's session, its AD line has remained strong, and its relative strength is approaching a big breakout as well:
Health care (XLV) could get a boost from a rising medical supplies group. It could spill over to health care providers ($DJUSHP), which have moved within 2-3% of a major breakout to 52 week and all-time highs.
ChartLists/Strategies
We're seeing breakouts everywhere. Back in May, we were seeing breakouts in stocks that were favored during the pandemic. Now we're beginning to see more and more breakouts among stocks that were not favored during the pandemic, quite the opposite actually. I sifted through our various ChartLists and found the following potential breakouts to be interesting:
FIX:
TKR:
SEE:
If you simply look at the price action, you might think all 3 of these breakouts are created equal. However, I prefer TKR over the other two. Why? Well, first there's volume. While none of the three are showing heavy volume today, I believe FIX and SEE are unusually light, especially for a breakout day. Furthermore, check out the AD lines. TKR's is easily the best, setting a new 52 week high for the AD line in August and remaining in an uptrend. Also, look at the relative strength of their respective industry groups. SEE is part of the containers & packaging area, which has no doubt come to life in recent weeks. But just 5 weeks ago, it was at a 52 week low. Business support services was very strong, but has clearly rolled over since topping in June.
I just really like the way TKR lines up technically. That's not to say it'll be the best performer. I'm simply telling you how I'd compare and contrast the three charts.
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, October 6:
PAYX, LEVI
Wednesday, October 7:
RPM, LW
Economic Reports
None
Happy trading!
Tom