EB Daily Market Report - Wednesday, January 6, 2021

Tom Bowley - January 06, 2021

Executive Market Summary

Futures were bifurcated overnight and at the opening bell
The Dow Jones saw strength, while NASDAQ shares opened considerably lower
Action since the opening bell, however, has been consistent as buyers are everywhere
The Dow Jones touched 31,000 for the first time ever today, while the S&P 500 is currently in record territory
The 10-year treasury yield ($TNX) has jumped 9 basis points to 1.05%, the first move above 1% since March
Financials (XLF, +5.03%) are surging on the heels of the TNX spike, with banks ($DJUSBK, +6.94%) leading the way
The Georgia Senate runoff vote may result in a 50/50 split in the Senate; Vice President-elect Kamala Harris would have the deciding vote in such a scenario
Goldman Sachs (GS, +6.13%) and JP Morgan (JPM, +5.46%) are two financial stocks benefiting today and helping to lead the Dow Jones to the 31,000 level

Market Outlook

I've received many questions regarding my thoughts if Democrats win the 2 Senate seats in Georgia in yesterday's runoff vote. Let me be very clear about one thing. We are in a secular bull market until proven otherwise. Wall Street isn't dumb. This possibility of a Democratic sweep in Georgia is something that Wall Street has considered for weeks and here we are in record high territory. So don't believe that U.S. equities will fall apart if that ultimately is the outcome.

Having said that, I can tell you that historically U.S. stocks perform worse when one political party - either Republicans or Democrats - controls the White House, Senate, and House of Representatives. I believe the stock market will go higher, but the charts and intermarket relationships will inform us of any material changes in the makeup of this bull market and we'll adjust accordingly, including our portfolio selections. I do favor the industrials (XLI) and financials (XLF) much more right now based on these latest developments, but again, the charts will tell us everything we need to know. Don't listen to the media.

Sector/Industry Focus

The financials (XLF) are challenging a very important price resistance level, one that, if taken out, would likely lead to further short-term gains. Here's the visual:

Typically, it takes more than one attempt to clear an important resistance level, so don't be shocked if this attempt fails. The good news, however, is that financials are about to join our other aggressive sectors in breakout territory. When the stock market is at all-time highs and is being led by the aggressive groups, that's a signal that the current rally is sustainable.

ChartLists/Strategies

You might be surprised, but many stocks have been downtrending, despite our major indices performing quite nicely. It underscores the fact that not all stocks go up at the same time. Rotation is critical and it provides opportunities every single day.

I ran the Downtrend Reversal scan against our Strong Earnings ChartList (SECL) and Raised Guidance ChartList (RGCL) and 22 stocks were returned. I further narrowed it down to stocks with SCTR scores > 80. Here were the 6 stocks that still remained:

SFIX, SAIL, UPWK, LL, VERI, RH.

Two of these stocks are also testing their respective 20 day EMAs.

SAIL:

VERI:

Software ($DJUSSW) remains under pressure on a relative basis and both the above stocks are in that industry group. I've provide key support levels on both if 20 day EMAs fail to hold. These two stocks have been software leaders, so losing technical support would add to the bearishness being felt across the industry.

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, January 6:

RPM, MSM, UNF, SMPL, GBX

Thursday, January 7:

MU, STZ, WBA, CAG, LW, HELE, DCT, AYI, WDFC, BBBY, ACCD, LNN

Economic Reports

December ADP employment report: -123,000 (actual) vs. 130,000 (estimate)

Happy trading!

Tom