EB Daily Market Report - Monday, October 12, 2020

Special Event Today

Today marks the Sneak Preview of the Model ETF Portfolio that we'll be announcing next Monday, October 19th. Today's event will provide you a "behind the scenes" look into how we're approaching this new product and service. It will still be based on many of the traits that we look for in individual stocks in our attempt to outperform the S&P 500. There are most definitely limitations to an all-ETF portfolio and I'll discuss those as well. ETF investing requires a different mindset, primarily because the basket of stocks in various ETFs is already picked. So there's an evaluation that must take place.

All of this will be discussed later, but I hope you can make it. It's a big day for us here at EarningsBeats.com as we offer a new product/service that many of you may find very appealing. This service will continue to evolve over the next couple months. Because of that, there will be no additional charge for anyone through December 31st. As a paying member of EarningsBeats.com, our new service can be evaluated through year end without having to make any additional financial commitment or decision.

One last thing. There will a TREMENDOUS annual subscription offer announced during the webinar. Be sure to check that out in the recording (which will be sent out to everyone later today) if you cannot attend this afternoon's webinar live or at our website under "Webinar Special".

Executive Market Summary

• Futures were strong to open the week, especially on the NASDAQ
• Strength is continuing throughout the day as a "trend day" appears to be well underway; trend days occur when buying is apparent throughout the session, typically with prices opening on the low and closing on the high
• Crude oil ($WTIC) has fallen another 3% as energy (XLE) and real estate (XLRE) are the only sectors not participating in the advance
• Communication services (XLC, +2.80%) and technology (XLK, +2.71%) are atop the sector leaderboard
• Internet ($DJUSNS, +3.63%) and computer hardware ($DJUSCR, +5.26%) have jump-started the XLC and XLK
• The dollar (UUP) remains in its short-term downtrend, though flat today, but that's done little to boost materials (XLB) on a relative basis - check out the Market Outlook below
• Apple (AAPL) and Microsoft (MSFT) are among the top 3 Dow Jones performers (WBA is the other)
• Earnings season begins to accelerate tomorrow morning - a list of key earnings reports due out tomorrow is provided at the bottom of this DMR

Market Outlook

In case you haven't noticed, the dollar (UUP) is back in a downtrend and gold (GLD) has been rallying. But rallying and outperforming are not the same. GLD, despite a softening dollar, has been unable to keep pace with the S&P 500 the past couple weeks and that really makes it tough for me to endorse this group:

First, check out the blue circles and blue-dotted line. This was meant to highlight what the dollar has done over the past 10 weeks, which hasn't been much. It's relatively flat, but check out GLD's massive underperformance. It's why I'm staying away from gold. But note the XLB hasn't performed badly at all. In fact, despite gold's weakness, the XLB is in a relative uptrend vs. the benchmark S&P 500. That's bullish, but perhaps a mixed picture since the dollar's weakness the past 2-3 weeks hasn't really led to XLB:$SPX follow through.

There's not much bullish with energy (XLE), however. Despite the UUP weakness the past 2-3 weeks, the relative downtrend continues rather unabated. And if we were able to strip out the renewable energy space ($DWCREE), which has been so bullish, this relative downtrend would be even worse.

Sector/Industry Focus

Internet ($DJUSNS) is exploding higher today and I believe this is a theme emerging that could last throughout the quarter. This group had consolidated in September, which I said at the time was much more bullish than the alternative. We want pauses in leading groups and rotation to other groups to keep nearly all groups in bullish configurations. Now the money is rotating back to internet and the move today is powerful. Here's the long-term weekly chart of the DJUSNS on a relative basis vs. the S&P 500:

This group's relative strength since March is quite obvious and we're beginning to turn higher again. The weekly "relative" PPO is still well above the centerline. Though its relative momentum slowed as the group consolidated in August and September, it now appears to be regaining relative strength. I expect a strong quarter from this industry.

ChartLists/Strategies

Here are a few updates of individual stocks that I've recently discussed here in the DMR:

VUZI:

Remember this bullish ascending triangle?

Check out the volume today! Confirmation of the pattern is taking place (barring an afternoon reversal) with an initial pattern measurement to 6.25.

FB:

Remember the 20 week EMA test from three weeks ago?

That 20 week EMA test is now a distant memory. Buying leading stocks in leading industry groups during periods of consolidation typically pays off in a big way during a secular bull market advance. Now everyone is buying FB.

JD:

Remember price dropping, while the AD line was advancing?

Price action is catching up now. Once again, JD is a leader in a leading industry - broadline retailers ($DJUSRB). It's now rallied 15% in 2-3 weeks. Homework pays dividends.

SPWR:

Remember the breakout with heavy short interest?

That day, I featured SRNE, SPCE, and SPWR as potential short squeezes and even highlighted SPWR as the most reliable, in my opinion, because of its hot renewable energy space. SRNE and SPCE have not performed as well, but are still both in position to catch fire as well. SPWR, hopefully, showcases what a heavily shorted stock can do when its industry is in favor and it the shorted stock begins breaking out on a relative basis to that hot group. It's been a melt up!

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 12:

None

Tuesday, October 13:

JNJ, JPM, C, BLK, FAST, FRC, DAL

Economic Reports

None

Happy trading!

Tom