EB Daily Market Report - Monday, November 16, 2020

Tom Bowley - November 16, 2020

Special Event - Rotation

Later this afternoon, I'll be hosting a very special webinar to discuss the rotation taking place right now and how EarningsBeats.com members can potentially take advantage of it. The webinar will begin promptly at 4:30pm ET and you can join by following this link:

https://us02web.zoom.us/j/83647580990

The room will open at approximately 4:00pm ET. Hope to see you there!

Executive Market Summary

Futures were higher today, then were lifted further by Moderna's (MRNA) positive vaccine news
The 10-year treasury yield ($TNX) is up a basis point to 0.91% today as money rotates away from bonds
Crude oil ($WTIC, +3.14%) is spiking again and threatening 41.90 per barrel, the highest close in the past 10 weeks
Crude's strength is lifting energy shares (XLE, +6.32%); the XLE is now up 33% since the October 29th low
Global markets are strong given the bullish vaccine data
Transportation stocks ($TRAN) look to close at yet another all-time high today
Home Depot (HD, -0.20%) announced an acquisition of HD Supply Holdings (HDS, +24.63%)
The Dow Jones approached the psychological 30000 level earlier today, though small caps ($SML, +2.31%) is the best performing of our major indexes

Market Outlook

Positive vaccine news, Round 2. That's what we're seeing today. It was another big gap higher this morning after Moderna Inc. (MRNA) announced their vaccine efficacy rate was even better than Pfizer's (PFE), last week's good news vaccine company. MRNA soared at the open on its news, and is currently trading higher by nearly 10%.

The more important development is the continuing rotation among sectors and industry groups. The leaders from last week - energy (XLE), industrials (XLI), and financials (XLF) - are at it again, while health care (XLV), quite ironically, is the only sector losing ground. From an industry perspective, it's very important to note that 2020 leaders are not breaking down. They're consolidating, which is a big difference. I expect that U.S. stocks are going higher, but we want to be able to spot the rotation and relative strength early.

Sector/Industry Focus

One big change of late has been the improving performance of small caps. It's not just been this week, but the S&P 600 Small Cap Index ($SML) has been crushing the S&P 500 ($SPX) for the past 6-7 weeks now:

We've cleared the August relative high. The big one left is the June 8th relative high. Closing above that relative resistance confirms, in my view, that small caps are destined for further relative gains into 2021.

ChartLists/Strategies

Now that we've seen the second piece of positive news in two weeks regarding the COVID-19 vaccine, it's time to watch our Short Squeeze ChartList (SSCL) for potential breakouts and the possibility of significant short covering. Many stocks on this list were shorted because of weakness associated with the virus back in the Spring. It makes sense to see these stocks perform well with positive vaccine news and data. Here are the performance leaders on our SSCL today:

JWN was a stock mentioned last week in one of our DMRs and it continues to put pressure on those on the short side. How much pain will they take? What if it gaps up again tomorrow.....and Wednesday? The above represents the top 20 performers (out of 72) on this ChartList. Trading short squeeze candidates on the long side is a different breed, because you're banking on strength to lead to more strength as shorts cover. I believe this strategy should only be used by those with very high levels of risk tolerance. And remember, many of these stocks are being shorted for a reason. If they break down, you should be prepared to exit.

Of the 20 stocks listed, let's look at the 3 with the highest short percentages:

GME:

FIZZ:

SKT:

If you do take a long position on any heavily-shorted stock, you typically want to see a strong finish at the close as that suggests shorts are beginning to feel the pressure and they don't want to take a chance of a big gap higher into the next open.

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 16:

JD, BEKE, BIDU, PANW, TSN, IQ, GDS, ACM, YY, SDC, CRNC

Tuesday, November 17:

WMT, HD, SE, ARMK, KSS, LZB

Economic Reports

November empire state manufacturing index: 6.3 (actual) vs. 13.5 (estimate)

Happy trading!

Tom