EB Daily Market Report - Thursday, December 10, 2020

Tom Bowley - December 10, 2020

Save The Date!

Event: MarketVision 2021

Date: Saturday, December 19, 2020

Time: 9:00am - 2:00pm ET

I will be speaking and I'll have two other distinguished speakers joining me - David Keller, Chief Market Strategist, and Grayson Roze, VP of Operations, both from StockCharts.com. More details to follow!

Executive Market Summary

Futures were lower this morning, adding to Wednesday's poor action
There's been some buying, though the last two hours of the day will provide us a few short-term clues
The NASDAQ is showing relative strength today as are growth stocks
Growth vs. value (IWF:IWD) again tested a critical 1.69 relative support level this morning before bouncing
Energy (XLE, +2.68%) is easily the top sector, while industrials (XLI, -1.17%) is the only sector to lose more than 1%
Initial jobless claims unexpectedly rose above 800,000, sparking buying interest in treasuries
The Volatility Index ($VIX) has risen to its highest level in 2-3 weeks and threatening to close above its 20 day EMA for the first time since early November
Adobe Systems (ADBE, -2.40%) posted better-than-expected quarterly results and raised its guidance, but Wall Street simply isn't in the mood to buy software stocks ($DJUSSW, +0.10%) at the moment

Market Outlook

I received an email asking how to take advantage of the relative strength in small caps and the rotation from growth to value. Well, to a minimize risk to a degree, you could consider ETFs that focus on small cap value. There are plenty to choose from, but I'd consider the iShares S&P Small Cap 600 Value ETF (IJS) or the Vanguard Small Cap Value Index ETF (VBR). The charts are similar, but I'll show you the VBR:

The blue circles highlight the solid performance since the November 9th vaccine news from Pfizer (PFE). ETFs provide a diversified opportunity to trade a theme. If the theme turns out to be wrong, you'll lose a small amount vs. the S&P 500, but probably not anything huge. Another way to take advantage in this shift is to trade individual stocks. One quick way would be look at the Top 10 Holdings of an ETF like VBR and see if any meet the criteria that you like in terms of reward to risk entry. From Yahoo Finance, here are the Top 10 Holdings of the VBR:

GNRC (discussed below) and PTON are both portfolio stocks of ours. I wouldn't exactly consider PTON to be a small cap, but....

When I looked at the Top 10 Holdings for the IJS, BBBY was listed as one of them, another portfolio stock of ours. BBBY is reviewed below as well in the "ChartLists/Strategies" section.

Sector/Industry Focus

Industrial stocks are weak today and one group that could be at a solid entry point is waste & disposal services ($DJUSPC). This group has been downtrending for 4-5 weeks now, but is now at both price and 50 day SMA support. This comes on the heels of a failed breakout attempt. Check this out:

Note that in the bottom panel, the DJUSPC is nearing a 52-week relative low vs. the S&P 500. As a trader, that's very useful information because I don't want to hold on long to a failed trade, especially if it's in a weak group.

ChartLists/Strategies

I'm going to continue on the theme in today's DMR. Above I highlighted two small cap ETFs and 3 of their top holdings - GNRC, PTON, and BBBY. I like all 3, but for different reasons, though each has sold off recently.

GNRC:

GNRC remains a leader amongst its peers, which is great. From a trading perspective, any further weakness will likely set up a solid reward to risk trade.

PTON:

While it's not a primary indicator, I LOVE the AD line here on PTON. Yes, it's pulled back quite a bit, but it's a volatile stock. After a huge run, it's entitled to some selling. It certainly appears, however, that institutions will gladly buy any shares offered up.

BBBY:

BBBY delivered an awesome quarterly earnings report recently. The opening gap higher established very significant support near 18, which BBBY retested today for a second time. Buyers have emerged from this level twice before and today's potential bullish engulfing candle could be marking a major bottom. A close beneath 18 would require re-evaluation (and a closing stop for anyone wanting to keep losses to a minimum).

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, December 10:

ADBE, ORCL, AVGO, COST, LULU, MTN, CIEN, PLAY

Friday, December 11:

None

Economic Reports

Initial jobless claims: 853,000 (actual) vs. 724, 000 (estimate)

November CPI: +0.2% (actual) vs. +0.1% (estimate)

November Core CPI: +0.2% (actual) vs. +0.2% (estimate)

Happy trading!

Tom