EB Daily Market Report - Thursday, October 8, 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 higher overnight, looking to extend Wednesday's gains
- Commodities are mostly higher today as energy (XLE, +2.39%) leads today's action
- Defensive groups are also strong as real estate (XLRE, +1.54%) and utilities (XLU, +0.95%) are prominent on the sector leaderboard
- Financials (XLF, +1.05%) are strong as well, with asset managers ($DJUSAG, +2.92%) surging
- All 11 sectors are higher, which is very bullish, but consumer stocks are lagging; in particular, a number of retail stocks are lower on the session
- IBM is up nearly 7% today, carrying the Dow Jones higher
- Amgen is down nearly 5%, weighing on the Dow Jones, and on the biotechnology group ($DJUSBT, -0.09%)
Market Outlook
At the beginning of September, there were warning shots being fired by two key sentiment indicators - the Volatility Index ($VIX) and the Equity Put Call Ratio ($CPCE). When the market grows too complacent, we have to acknowledge it and at least begin to prepare for a possible period of selling and/or consolidation. That's what we did in September. Here's the current look at these two sentiment indicators on a 5 day moving average basis, along with the S&P 500, over the past few years:
These signals are not perfect, but I believe when you study them, you'll see that you should at least be paying attention. When the correlation between the S&P 500 and VIX turns positive, that's a warning sign. It tells us the market is getting nervous while prices are rising. Then we have the CPCE, which when it prints ratios at or below 0.55, it's telling us that options traders are growing incredibly brave, buying calls and throwing caution to the wind. That can mark tops.
Currently, the CPCE is below 0.55, so that's something to be aware of. But the correlation between the S&P 500 and VIX is negative and appears to be dropping. So that suggests that the market's fear level is dropping as the S&P 500 rises and that's generally what we see during sustainable secular bull market advances.
Sector/Industry Focus
Energy (XLE) is showing strength today with two of its industry groups - oil equipment & services ($DJUSOI) and integrated oil & gas ($DJUSOL) - the top industry groups. Short-term, that's great news. Long-term, there's a lot of work to do as you can see from the relative performance of these two groups over the past few years:
I do not try to be a hero and call bottoms in sectors, industry groups, and individual stocks. I leave that up to others. Our philosophy at EarningsBeats.com is to stick with strength. As money rotates and we see new leadership, we'll change and ride that new momentum. But until then, we avoid "catching the falling knife".
ChartLists/Strategies
I used the high volume scan syntax on our website to look for stocks on any of our ChartLists that have traded at least 40% of average daily volume during today's first 45 minutes of trading. Here was the scan syntax:
....and here were the results:
I sorted the above in SCTR order. Note the top 4 are all renewable energy names, along with JKS at the bottom, which hasn't been assigned a SCTR score. Throw in FSLR and 6 of the 23 names are all in the same space - renewable energy ($DWCREE). They've made huge upside moves and we're seeing some profit taking today.
Of the others, these 3 are notable:
BE:
This was highlighted yesterday, but it bears repeating as it's definitely in short squeeze mode as 22.7% of its float is short. Short sellers are squirming and with every tick higher, they're forced to decide whether to add to the buying frenzy. The high volume today is an important factor in a short squeeze.
CNR:
Everything on this chart looks bullish to me, except for possibly the AD line, but even that has begun to improve. I really prefer stocks that make breakouts after long periods of consolidation. This one seems to fit.
PPG:
It's early, but the breakout attempt thus far is failing. A renewed buying interest into today's close would be much more bullish than that current candle. Relative strength here looks pretty good, though, so a strong finish would be bullish.
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.
Thursday, October 8:
DPZ, HELE, AYI
Friday, October 9:
None
Economic Reports
Initial jobless claims: 840,000 (actual) vs. 819,000 (estimate)
Happy trading!
Tom