EB Daily Market Report - Monday, January 11, 2021
Executive Market Summary
- Futures began the week on a sour note, but we have seen buying/consolidation since that early selling
- On a relative basis, small caps ($SML) and mid caps ($MID) are both showing gains at last check and leading
- Energy (XLE, +1.26%) is having a solid day as crude oil ($WTIC) is up slightly and above $52 per barrel
- Gold ($GOLD, +0.71%) and silver ($SILVER, +2.10%) are also moving higher as commodities show strength
- Real estate (XLRE, -1.85%) is the weakest sector, but communication services (XLC, -1.69%) and consumer discretionary (XLY, -1.55%) are also showing relative weakness today
- A couple large biotechs ($DJUSBT, +0.85%), Eli Lilly (LLY, +11.05%) and Biogen (BIIB, +7.46%) are leading the S&P 500
- Twitter (TWTR, -6.46%) and Tesla (TSLA, -6.27%) are among the worst S&P 500 performers, with the latter taking the auto industry ($DJUSAU, -5.27%) down with it
Market Outlook
Options expiration will remain one topic that we need to keep in mind this week. 60 minute negative divergences would be another. The following is the current look at the S&P 500 on an hourly chart:
We've been holding that rising 20 hour EMA (green arrows), but if we bounce one more time and set another price high, it's likely to coincide with a very nasty negative divergence. These are only short-term warning signs, but with options expiring later this week, it's probably not a great idea to completely ignore a momentum warning.
Sector/Industry Focus
Biotechs ($DJUSBT) are going against the grain today and rising. More importantly, the group is attempting to break out above key price resistance from July:
This chart is very bullish to me, whether the DJUSBT breaks out today or not. Failure could result in a handle back to the rising 20 day EMA. A breakout should be respected, though I'd still consider the rising 20 day EMA to provide excellent support on any selling.
ChartLists/Strategies
I reviewed stocks on our Strong Earnings ChartList that had SCTRs above 90, but were lower on today's session, looking for key support tests. These two caught my eye:
PDD:
VCEL:
Both of these stocks bounced off either tests of their respective rising 20 day EMAs or they bounced just as they approached those key moving averages. These two stocks are just 2 of the 490 charts that we currently have on the SECL. I'm not suggesting that I'd jump into these 2 charts after big rebounds. But I continually discuss the idea of buying strong stocks when they pull back to test key support like the rising 20 day EMA. As you look at more and more of these stocks, check out their chart history and begin to get a feel for how often that rising 20 day EMA provides solid support. It's generally a solid area to consider buying a leader as it's trending higher.
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, January 11:
SNX, CMC, SLP, AZZ
Tuesday, January 12:
ACI, KBH
Economic Reports
None
Happy trading!
Tom