EB Daily Market Report - Wednesday, November 11, 2020

Tom Bowley - November 11, 2020

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Executive Market Summary

Futures were higher overnight and this morning as the NASDAQ regained its leadership role
Growth stocks (IWF) are outpacing value stocks (IWD) for the first time this week
Technology (XLK, +2.29%) and consumer discretionary (XLY, +1.12%) are rebounding, helping to lead 7 of 11 sectors higher
Materials (XLB, -1.38%) and energy (XLE, -0.88%) are lagging today
The U.S. Dollar (UUP) continues its advance this week after selling off all last week
2020 leaders like renewable energy ($DWCREE, +5.89%), semiconductors ($DJUSSC, +3.49%), software ($DJUSSW, +2.89%), and broadline retail ($DJUSRB, +2.71%) are leading industries today
ETSY and QCOM are leading the S&P 500 higher
DIS, CSCO, and AMAT will report earnings on Thursday

Market Outlook

My study of the current market rotation is underway, but at least for the moment, strong 2020 areas are making a comeback. The timing is great as the NASDAQ rebounds from a recent hourly negative divergence and the top of gap support. Check this out:

The pink circles represent PPO centerline and 50 period SMA tests, which is what I look for after a negative divergence forms. Now we're seeing the NASDAQ advance. Continuation of this rally, especially if the NASDAQ shows leadership, would be very bullish.

Sector/Industry Focus

One key relationship that I've discussed throughout 2020 is the relationship between growth stocks (IWF) and value stocks (IWD). That ratio (IWF:IWD) has been rising throughout 2020 and I've pointed out that as long as it remains above 1.69, I'd continue to favor owning growth stocks. From a fundamental perspective, any company that can grow earnings rapidly in a historically-low interest rate environment commands higher PE ratios. Earnings are, quite simply, worth more in a lower interest rate environment. That is a Valuation 101 principle. So as I look to the balance of 2020 and into 2021, I fully expect the stock market is going higher and that growth stocks will lead. That's what I expect. But it doesn't mean I won't consider value stocks if Wall Street begins favoring them. The first reason that I would consider value stocks would be the IWF:IWD falling below 1.69:

When a new relative high prints on the chart, then the most recent low becomes an important relative support level. Currently, the 1.69 level marks that important relative low. Once broken, it doesn't necessarily mean everything changes, but it does alert us to the fact that this uptrend of higher relative highs and higher relative lows has ended. What the above chart does NOT show is that the intraday low on Tuesday was 1.693. We've tested it and now we're turning back higher. From a bullish perspective, this is EXACTLY what we want to see and we want it to continue.

ChartLists/Strategies

Should the bottom be in, which both the 60 minute NASDAQ chart and the IWF:IWD relative chart seem to be suggesting, then we want to consider the "best of the best" for a rebound. That's best stocks in the best industries, which includes many of our portfolio stocks. So, for instance, let's pull up our Model Portfolio, because that's where I generally start:

Our experience with our portfolios is that when the market rebounds, money rotates most strongly into leaders. The Model Portfolio above shows that every one of our component stocks is currently outperforming the benchmark S&P 500, several by a wide margin. This is certainly good news, especially after the rough start to this week. Zoom (ZM) has lost some relative strength of late, but I'd say it still has tremendous relative strength over the course of 2020:

ZM remains one of my favorite stocks. I don't currently own it, but I do trade it frequently. If the recent rotation away from technology were to continue, I've highlighted a key area of gap support. The most significant volume on the chart occurred when ZM gapped from 325 on August 31st as a result of strong quarterly earnings results. There was profit taking down to a low close near 350 four trading days later. The BEST reward to risk entry would be in this range, but that doesn't mean we'll see the price get that low. Building a position in this leader makes sense to me as it trends lower and beneath its now-declining 20 day EMA. ZM is in consolidation mode and I have no way of knowing how low it might go. I doubt that it gets to 350, but technically it's a possibility, especially if these stay-at-home stocks remain out of favor for longer than just a couple days.

One stock on our Aggressive Portfolio is also on our Raised Guidance ChartList (RGCL). TTWO has key price support at 153.53 as reflected below:

The internet stocks ($DJUSNS) remain a solid industry for 2020 and renewed strength would benefit a company like TTWO. There have been multiple price support tests in the 153-154 area as TTWO has not opened or closed beneath 153.53. So keep that level on your radar. In the meantime, its recent price high has been roughly 177-178. Despite the back and forth action, TTWO's AD line remains near its high. I don't see much distribution taking place, so this recent selling very well could be a great opportunity for entry.

We provide these ChartLists to our members as part of what I believe is the best research platform anywhere. It's available to both professionals and individuals, so please be sure to check out these ChartLists. I believe they'll significantly increase your odds of investing and/or trading success.

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.

Wednesday, November 11:

APD, MFC, GIB, ATO, TTEK, REYN, DOYU, HI, GRWG

Thursday, November 12:

DIS, CSCO, PDD, AMAT, TDG, AMC, XPEV, PLTR, GDRX, NICE, FTCH, WIX, AQN, DLB, GLOB, ENR, TSEM, IGT, MTOR, CELH, INMD, SBH, SSYS, HIMX

Economic Reports

None

Happy trading!

Tom