EB Daily Market Report - Monday, November 9, 2020
Special Event - Strategic Investing
I'll be hosting our quarterly "Top 10 Stocks: Sneak Preview" webinar today at 4:30pm ET. I will discuss my "top down" strategy of creating these portfolios, which now has a consistent track record of solidly outperforming the benchmark S&P 500 index, although today is certainly an exception as the stock market rotates significantly. You can join the webinar using the following link:
https://us02web.zoom.us/j/81980840104
Executive Market Summary
- Futures shot higher this morning, but the rotation completely changed from the past 8 months
- The Dow Jones and S&P 500 broke into record territory and they're continuing to hang on at last check
- The NASDAQ, however, has given up its gains as money rotates away from growth (IWF, -0.37%) to value (IWD, +5.34%)
- Energy (XLE, +14.78%), financials (XLF, +9.15%), industrials (XLI, +4.84%), and real estate (XLRE, +4.46%) are soaring
- All 11 sectors are higher, but communication services (XLC, +0.17%), technology (XLK, +0.70%), and consumer discretionary (XLY, +0.90%) are up less than 1%
- The big news out this morning was that Pfizer (PFE, +8.88%) indicated its COVID-19 vaccine is more than 90% effective, surpassing most scientists' hopes of 75%
- Many of the worst hit industry groups during the pandemic are soaring today, reflecting that significant change in rotation; more on this below in Sector/Industry Watch
- Stay-at-home stocks like Zoom (ZM), Wayfair (W), Peloton (PTON), Docusign (DOCU), etc. are suffering the most from today's rotation
Market Outlook
At the time our latest portfolio stocks were announced, I discussed my trepidation about rotation. I felt strongly that we remained in a secular bull market and would trade higher. What I wasn't so confident about was which areas of the market would lead. How long would we have to wait for a vaccine? Once announced, would it result in the underperformance of stay-at-home stocks? For a brief period? For much longer? Those were questions that I honestly didn't know the answer to. I absolutely would have expected the beaten-down pandemic stocks to rally on today's news. They can't recover without a vaccine or herd immunity.
The initial reaction today has been one of complete "about face" rotation. Leading stocks over the past 6-9 months are being trounced today, while the laggards are showing the equivalent of 1 to 2 year gains in a day. Cruise lines are up 30%, while some airlines are up 20%. The Dow Jones U.S. Hotel & Lodging REITs Index ($DJUSHL) is up 32%. It's definitely a relief rally, but does it continue? That will be a question that we need answered.
Sector/Industry Focus
Showing the industry group relative strength leaderboard will quickly illustrate the changes taking place in the U.S. stock market today:
I'm not at all surprised by this initial reaction to the awesome vaccine news. But I'll be evaluating over the next several days whether we actually see accumulation in various sectors and industry groups, or is it simply gaps. If you recall, back in March, we saw opening gaps lower in EVERYTHING, but after the open, we saw significant rotation during the trading day. Currently, I'd say the action looks quite promising for the beaten-down areas to retain short-term strength. That could change, however, and whether it does will impact the makeup of our secular bull market rally as we close out 2020 and move into a brand new year.
ChartLists/Strategies
Well, I provided 4 portfolio stocks on Friday - QCOM, YETI, NET, and PINS - that I suggested could remain in our portfolios next quarter. Despite the absolute and/or relative weakness they're all seeing today, I'm not sure I'd change my thought process - at least not yet. YETI does have a red-filled candle, which will impact its AD line, but the action in the others isn't bad considering what many of our other portfolio stocks are doing. And it's not good. This is likely our worst day of performance in our various portfolios since they were introduced. I'm not discouraged. Disappointed is probably a better word. But when you outperform to the extent we have, there are going to be reversal days and this is a big one.
I'm really not doing much in the way of trading right now, because I don't have a sense yet of whether this is a one day wonder for many of the pandemic stocks or if this is truly the start of something bigger. I do see the U.S. stock market going much higher, but it's the rotation that will be important.
The Short Squeeze ChartList and the stocks on it could be interesting. Any stocks getting a big lift there could see more strength in the short-term as traders assess how much risk they're willing to take. Morning gaps really put pressure on traders, because of the unlimited risk that these stocks carry. Here are two stocks on our SSCL that look interesting near-term:
JWN:
This will be one of JWN's heaviest volume days of the past year. I wouldn't be surprised to see another gap higher tomorrow putting more pressure on short sellers. JWN has nearly 44% of its float short. That's a lot of potential short covering.
FLXN:
FLXN has 25% of its float short and very important levels of absolute and relative price resistance approaching. If FLXN breaks out, I'd have to believe that large short interest could send this one flying.
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, November 9:
MCD, RNG, XP, WPM, SPG, BKI, BIP, OSH, IFF, NBIX, BYND, OXY, NKLA, PLUG, NVAX, RAMP, NCLH, AL, DIOD, TGNA, SPT, WKHS, INO, ELY, NSTG, TLRY, NLS, GOGO, CARS, ACB
Tuesday, November 10:
RKT, DDOG, ALC, ROK, DHI, TME, BNTX, TXG, FICO, AAP, LYFT, DOX, ADPT, ASH, CYBR, ONEM, HAIN, PRPL, MODN, ERJ
Economic Reports
None
Happy trading!
Tom