EB Daily Market Report - Friday, October 30, 2020

Tom Bowley - October 30, 2020

DMR Delay Yesterday

Yesterday's DMR was sent at approximately 2:45pm ET. I received it personally at 4:07pm and others here at EarningsBeats.com received it even later. Unfortunately, we cannot control our mail delivery system. If it's consistently an issue, we'll look for an alternative. We don't typically have problems though. I apologize if you received the DMR yesterday after the market closed. If I'm going to post the DMR exceptionally early or late because of a schedule conflict, I will usually let you know. Emergencies can occasionally happen, but, if at all possible, I'll let you know if my schedule will be different.

Here is a quick reminder - if you haven't received the DMR by 3:00-3:15pm ET, check our website. When I mail out the DMR, I also post it simultaneously to our website. I really try hard not to send it out any later than 3pm ET, so checking around that time is a good idea as a backstop.

Executive Market Summary

Futures were lower overnight and quite volatile as our major indices extended their recent weakness
NASDAQ stocks are suffering on a relative basis today
Selling is heavily concentrated in growth areas; technology (XLK, -2.95%), consumer discretionary (XLY, -2.67%), and communication services (XLC, -1.91%) are easily the hardest hit sectors
Leading industry groups during the pandemic are taking the largest hits today
Computer hardware ($DJUSCR, -5.49%) is tumbling after Apple (AAPL, -5.67%) reported better-than-expected quarterly revenues & EPS
Starbucks (SBUX, -2.07%) is adding to a consumer discretionary selloff, despite posting solid results
Internet stocks ($DJUSNS, -1.39%) started off bullish enough on the heels of strong reports from Facebook (FB, -6.32%) and Alphabet (GOOGL, +4.38%), but they've succumbed to the sellers as well
Other big earnings-related losers today include Etsy, Inc. (ETSY, -7.32%) and Twitter (TWTR, -20.39%)
The 10-year treasury yield ($TNX) has risen 2 basis points to 0.85% after mostly solid economic news was released this morning
While we could point to a host of reasons for today's selling, like the upcoming election, COVID-19 cases, etc., a high and rising VIX suggests a panicked and irrational market

Market Outlook

When a panicked market hits, fundamentals go right out the window as does the normal role of market makers. That normal role involves providing liquidity (buying during selloffs and selling during advances). I refer to periods like this as market makers going "on vacation". Normally a bottom is found when the market "capitulates". To feel comfortable that a bottom is in, I'd like to see a major reversal after a panicked intraday selloff. Preferable would be an afternoon where many stocks go straight back up, finishing on or close to their highs of the session. I'd look for a bullish engulfing or hammer to print on our key indices. As I've indicated in recent DMRs, the S&P 500 support at 3200 should be watched carefully for a possible reversal. A move below intraday with an afternoon reversal at a key support level like that would be encouraging. Here's an hourly chart of the S&P 500 that does show a positive divergence (bullish) in play:

The red arrows mark short-term resistance at the declining 20 hour EMA. The green arrows on the price chart mark key short-term price support at 3200. These are the two key levels I'm watching right now. Please remember, however, that irrational markets can completely ignore technical support. The VIX is near 40, so literally anything goes.

The uncertainty over the election and the virus is obviously contributing to this very nervous market environment. Longer-term, I see nothing that sways me from my secular bull market call.

Sector/Industry Focus

Technology stocks (XLK) have been leading to the downside during the recent selling episode and they're now at an important support level:

I'm also keeping a close eye on the AD (accumulation/distribution) line on our sectors, industries, and individual stocks. Most have held up well, thus far, but that could change and definitely bears monitoring. If you recall, strong AD lines during the March selloff provided us excellent signals.

ChartLists/Strategies

I am going to continue to refuse to look for trading candidates as long as the current downtrend remains in play and the VIX is rising. I do believe that the first stocks to recover during a major rebound will be leaders. I would focus on preparing for that potential rebound by evaluating our portfolio stocks and recent earnings winners like SNAP and NET. I've highlighted a few key portfolio charts below, showing where I'd be bullish if a reversal were to occur:

AAPL:

SHOP:

Personally, I try to do what works for me. It may not work for others, so be sure to consider your own risk tolerance levels. I don't like giving up on relative winners on the first sign of weakness. They're entitled to periods of profit taking and consolidation after absolutely stellar advances. Sometimes, perspective is key. If you're a short-term trader, then yes, consider the extremely high VIX and understand the short-term risks that are present. If you're a longer-term trader/investor, I'd encourage you to take a step back and look at multi-year weekly charts to gain a better longer-term perspective.

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.

Friday, October 30:

ABBV, XOM, CVX, CHTR, HON, MO, CL, AON, LHX, PEG, CHT, LYB, WY, PSX, KKR, FTS, BR, WPC, IPGP, BAH, PNW, CBOE, LEA, NWL, UAA, FLIR

Monday, November 2:

PYPL, EL, MDLZ, WM, SBAC, CLX, SWKS, WMB, NTR, O, MPC, MPLX, FE, CDW, HZNP, ANET, STE, IR, PEAK, LNT, FMC, SEDG, LDOS, ON, NI, HSIC, TREX, JAZZ, CNA, IAA, AIZ, MOS, G, LITE, VNO, CRUS, WING, JCOM, NSP, MIME, CWH, FN, CDLX, VCYT, MED, AMCX, EVER

Economic Reports

September personal income: +0.9% (actual) vs. +0.3% (estimate)

September personal spending: +1.4% (actual) vs. +1.0% (estimate)

October Chicago PMI: 61.1 (actual) vs. 58.0 (estimate)

October consumer sentiment: 81.8 (actual) vs. 81.2 (estimate)

Happy trading!

Tom