EB Daily Market Report - Tuesday, January 12, 2021

Tom Bowley - January 12, 2021

Max Pain Event Today

At 4:30pm ET, we'll be hosting our regular Max Pain event, this time for January 2021. It should be very interesting because of the market's recent strength. There are a TON of stocks with significant in-the-money call premium and I'll highlight a few of those for you in today's session. If you'd like to attend the event, you can do so by clicking the following room link:

https://us02web.zoom.us/j/83298264109

If you cannot make this event, no worries. We will record the event and it will be available to members later this evening on our website.

Executive Market Summary

Futures began the day fairly flat and we're still fairly flat
Our major indices are testing or approaching 50 hour SMAs, indicative of short-term consolidation
The IWM (Russell 2000 ETF) has printed an ugly negative divergence on its hourly chart with today's rise
Commodities are mixed, although crude oil ($WTIC) is up another 1.4% to nearly $53 per barrel
Higher crude is helping energy (XLE, +2.92%), which is atop the sector leaderboard
Consumer discretionary (XLY, +1.59%) is bouncing back from a rough day on Monday
Financials (XLF, +1.03%) are again benefiting from a rising 10-year treasury yield ($TNX), which is up 2 more basis points to 1.15%
Life insurance ($DJUSIL, +2.48%) and banks ($DJUSBK, +1.57%) are among the financial sector winners
One of our portfolio stocks, Etsy, Inc. (ETSY, +13.77%), is leading the S&P 500 today

Market Outlook

Everything changed for the bank stocks ($DJUSBK) when the initial positive vaccine news hit on November 9th. Looking back with perfect 20/20 hindsight, it's crystal clear:

The blue-dotted vertical line provides a pretty good visual of the change that took place on November 9th. Banks are now quite strong technically as their relative strength reaches a level not seen since March 2020. It's always an excellent sign for U.S. equities when banks are performing well, so consider this yet another signal of the bull market that lies ahead.

Sector/Industry Focus

Retail stocks (XRT) have been incredibly strong the past several months and its relative strength vs. the benchmark S&P 500 has been very bullish as well. But specialty retailers ($DJUSRS) have not been among the group's leaders. That could change with an absolute price breakout:

While the DJUSRS has clearly been lagging the overall retail group - rather badly I might add - we could see that change on a breakout of the current bullish ascending triangle continuation pattern. The majority of the group's relative weakness has taken place during its current consolidation phase. I would expect to see relative strength begin to surge higher if multi-month price resistance near 2500 is cleared. I find it particularly encouraging that the DJUSRS' AD line has already broken out to fresh highs. That suggests accumulation to me, which could precede a big surge in price.

ChartLists/Strategies

I scanned stocks on our Strong Earnings ChartList, searching for any stock with a SCTR over 90 (solid relative strength) and an RSI under 60 (not crazy overbought). This scan returned 11 stocks as follows:

APPS, ATEC, CDLX, COOP, MGNI, NET, OCUL, PDD, PTON, STNE, TUP. Here are the 3 that I wanted to mention:

APPS:

MGNI:

PTON:

The first two, APPS and MGNI, are two leaders in software, but both are volatile. Still, pullbacks to test rising 20 day EMAs are typically solid entry points, assuming that you're willing to trade stocks with higher than normal volatility and risk. PTON has been one of the best performing stocks of the past year and remains in one of our portfolios. Its industry, recreational products ($DJUSRP), recently broke out and I expect this leader to resume its uptrend and break to new highs once again.

Two other stocks worth mentioning are CRM and CLVS. The first one is testing a very critical gap support, while the second one is breaking out and is part of our Short Squeeze ChartList. Here are the two charts:

CRM:

Note the rising PPO as we're set to print a fresh closing low. That positive divergence, along with a still-strong AD line, tells me that CRM is worth the risk at this gap support level. Disclosure: I just bought CRM and plan to hold for a rebound. I'll consider a closing stop roughly 1% beneath gap support at 216.05. A close below 214 would require a re-evaluation and a likely sell for me.

CLVS:

Disclosure: I bought shares of CLVS and am counting on this breakout (close above 5.69) to stick. I don't make excuses for Short Squeeze stocks that fail to hold their breakout levels, so I'll exit on a close beneath 5.69. Otherwise, I'll likely continue to raise my stop below prior day lows if CLVS continues to advance.

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.

Tuesday, January 12:

ACI, KBH

Wednesday, January 13:

INFY, INFO, WIT, SJR

Economic Reports

None

Happy trading!

Tom