EB Daily Market Report - Friday, January 8, 2021
Saturday Event
At 10:00am EST, I'll be hosting our first event of 2021 - "Building an ETF Portfolio the Right Way". The substance of this webinar should appeal to both stock and ETF investors, because leadership is very important in both strategies. We'll also be unveiling for the first time ever our EB ETF Analyzer, a spreadsheet designed to help you select ETFs from our Strong ETF ChartList in a manner that's consistent with secular bull market rules and your own risk tolerance level.
We will send out room instructions in the morning or you can click on the following link to enter the room any time after 9:00am on Saturday:
https://us02web.zoom.us/j/82362976312
We record all of our webinars, so if you're unable to attend live, no worries at all. We'll have the recorded version on our website over the weekend.
Executive Market Summary
- Futures were higher, despite a second jobs report this week that turned negative
- The December nonfarm payrolls dropped 140,000, falling well short of the 50,000 that was expected to have been added
- The 10-year treasury yield ($TNX) has increased again today, this time 4 basis points to 1.11%
- Despite the rise in the TNX, however, financials (XLF, -0.55%) are on the bottom of the sector leaderboard
- Consumer discretionary (XLY, +1.71%) is today's darling behind yet another surge in automobiles ($DJUSAU, +6.46%)
- Rising rates, however, are having a notably negative impact on home construction ($DJUSHB, -2.02%)
- Transportation stocks ($TRAN, +1.08%) are getting a boost from both railroads ($DJUSRR, +2.37%) and truckers ($DJUSTK, +2.05%)
Market Outlook
We've seen a very nice advance in our major indices and our portfolios have been stunning, but I'm about to give everyone a reality check.
Options expire next Friday.
We've all been down this road before. The market looks like there's no way it'll ever sell off and then the proverbial carpet is pulled out from under everyone's feet. It might still be a little early to consider max pain levels. We'll be doing that in our Tuesday evening webinar next week. But if you've got nice profits in trading positions, beginning to take some off the table wouldn't be the worst decision in the world, even if stocks continue rising. There are ALWAYS other stocks to invest in and building cash levels as we start to make our way towards options expiration is a prudent decision. Look at the ChartLists/Strategies section below. There are 7 stocks that are showing possible reversals after 5 days of printing lower highs. Options expiration week tends to be much kinder to those stocks that have not been shooting straight up for weeks. Keep this in mind.
Sector/Industry Focus
Throughout the pandemic, I talked about how I felt we were in the midst of a major secular bull market, which was probably shocking to many. But I believe I've been proven correct. As I looked forward back in the fall, I pointed out things that could really fuel the next leg of this bull market. Two things I discussed were (1) rotation from bonds to stocks, and (2) the resurgence of transportation stocks. I believe both are confirming this bull market. The TNX has risen from 0.50% in August to 1.11% today. That represents a TON of money rotating out of bonds to chase stocks higher. Transportation stocks ($TRAN) are again breaking out, this time challenging 13000 for the first time in its history. Also, the TRAN relative to the Dow Jones Utilities Index ($UTIL) has been screaming higher, further confirming this bull market:
I can only think of one reason why transportation stocks break and lead utilities on a relative basis. Wall Street loves the economic picture going forward. Transports only make more money when they ship more goods.
ChartLists/Strategies
I ran the Downtrend Reversal scan from our website against the Strong Earnings ChartList (SECL), Strong Future Earnings ChartList (SFECL), and the Raised Guidance ChartList (RGCL) and 7 stocks were returned as follows:
FPRX, DOMO, TTD, RPD, IRTC, BAND, U
These 3 are worth mentioning:
FPRX:
The trading range is roughly 15 to 23, so the reward to risk isn't bad at its current price and gets better on any further drop. It is a smaller biotech ($DJUSBT), however, so it does carry more of a risk. Position size accordingly.
TTD:
Watch the 20 day EMA on TTD. A bounce and failure there would likely result in further selling. The red circle in the bottom panel is what I'm watching most closely for ALL software stocks. We moved to a 7-month relative low in early 2021. Unless we continue to show relative improvement, we need to be careful with software stocks. They've made a HUGE run the past few years and they may be passing the baton to other areas - even if only temporarily. If I was going to trade a software stock, I want it to be one that's showing better relative strength. That brings me to....
RPD:
I really like the recent explosion here and excellent relative strength. But if the software group is turning lower on a relative basis, we want to try to time any entry so that our losses can be contained. Something like a 20 day EMA test is perfect on a stock like RPD. If that support level fails, you can exit relatively unscathed.
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.
Friday, January 8:
None
Monday, January 11:
SNX, CMC, SLP, AZZ
Economic Reports
December nonfarm payrolls: -140,000 (actual) vs. 50,000 (estimate)
December private payrolls: -95,000 (actual) vs. 90,000 (estimate)
December unemployment rate: 6.7% (actual) vs. 6.8% (estimate)
December average hourly earnings: +0.8% (actual) vs. +0.2% (estimate)
Happy trading!
Tom