EB Daily Market Report - Thursday, October 22, 2020

Tom Bowley - October 22, 2020

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Executive Market Summary

Futures were lower overnight, but rebounded into this morning's open
Our major indices are currently bifurcated and near the flat line
Weekly jobless claims finally broke below 800,000, marking the lowest claims since March
The U.S. Dollar (UUP) is trying to break its recent losing streak, up 0.28% at last check
Sectors are mixed with health care (XLV, +0.88%) leading, while technology (XLK, -0.43%) lags
Medical supplies ($DJUSMS, +7.26%) are lifting health care as Align Technology (ALGN, +33.37%) has soared after crushing revenue and EPS estimates
Tractor Supply (TSCO, -7.62%) is one of the hardest hit S&P 500 companies, despite beating top and bottom line and raising guidance
Coca Cola (KO, +1.80%) is leading the soft drinks ($DJUSSD, +0.70%) higher; see Sector/Industry Watch section below for more

Market Outlook

Short-term, given the historical weakness that we see this time of October, I'm watching key short-term support on the S&P 500 ($SPX) and NASDAQ 100 ($NDX) as follows:

While I believe we could see further short-term selling, I'm welcoming it. Remember, there is no better time historically to be invested than from the close on October 27th to the close on January 18th. That bullish period starts next week, so I am looking to buy many of my favorite stocks (portfolio stocks) on this weakness.

Sector/Industry Focus

Soft drinks are bouncing off their latest 20 day EMA test, thanks in large part to strength in Coca Cola (KO) shares. KO is up against key price resistance. A breakout would be very welcome news to a group that hasn't performed well in 2020:

It's been a recent struggle for KO to clear overhead resistance in the 51-52 range. A breakout would most certainly help the overall DJUSSD's attempt to strengthen on a relative basis.

ChartLists/Strategies

Let's look at our Q3 Earnings ChartList to see the responses - both good and bad - from earnings reports last night and this morning:

The Good:

ALGN is the only one of our "strong" earnings candidates that is rising substantially today, despite the fact that every one beat earnings estimates. Meanwhile, the second to fourth stocks listed above were our "weak" earnings candidates. They actually produced pretty solid numbers, with the exception of T's earnings miss by a penny. It could be an indication that even the worst performing companies can beat numbers where the bar has been set so low. That'll be an interesting development to watch.

The Bad:

ENPH is down as renewable energy stocks ($DWCREE) finally see some profit taking after a significant advance. The other four, however, are all "strong" earnings candidates. All four beat EPS estimates, according to Zacks.com, but TAL did come up short on revenues. Still, I believe these reactions, both good and bad, help to illustrate how unpredictable it is to hold stocks into their earnings reports. TSCO, handily beat revenue and EPS estimates, raised guidance, and is down more than 7%.

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 22:

INTC, KO, T, DHR, UNP, NOC, KMB, AEP, TAL, DOW, COF, STM, FCX, SIRI, LUV, VRSN, WST, RCI, GWW, CHKP, TSCO, CTXS, FITB, DGX, VLO, NUE, GPC, POOL, SIVB, STX, MTB, PHM, ARGX, SAM, ENTG, SNA, AAL, MANH, MAT, TPH, EHTH, LLNW, BJRI, SCHN

Friday, October 23:

AXP, ITW, ABB, ALV, GNTX, CRI, FHN, UBSI, CLF, TRTN, AIMC, BLMN, VRTS, GBX

Economic Reports

Initial jobless claims: 787,000 (actual) vs. 842,000 (estimate)

September existing home sales: 6,540,000 (actual) vs. 6,200,000 (estimate)

September leading indicators: +0.7% (actual) vs. +0.6% (estimate)

Happy trading!

Tom