EB Daily Market Report - Wednesday, January 13, 2021
Executive Market Summary
- Futures were relatively flat as we move closer to options expiration on Friday; we have seen buyers emerge during today's session, however, as the S&P 500 climbs near last Friday's all-time high
- Defensive groups are showing leadership today as utilities (XLU, +2.07%) and real estate (XLRE, +1.25%)
- Meanwhile, financials (XLF, +0.10%) pause as the 10-year treasury yield ($TNX) dips 5 basis points to 1.09%
- Intel's (INTC) CEO Bob Swan announced he would step down, sending INTC's shares higher by 7.62% to their highest level since July; INTC is also today's biggest mover in the Dow Jones
- INTC's strength became Advanced Micro Devices' (AMD, -2.96%) short-term problem
- Computer hardware ($DJUSCR, +1.54%) is showing a bit of strength as Apple (AAPL, +1.67%) attempts a bounce off its 20 day EMA
- Small caps ($SML, -0.30%) and mid caps ($MID-0.39%) are underperforming the other key indices today
Market Outlook
In secular bull markets, anticipating rotation is very important. The aggressive sectors tend to lead the market higher, but not all aggressive sectors go higher at the same time. Currently, communication services (XLC) is showing short-term relative weakness, but the group is close to key support. Price support is near 65 and the rising 50 day SMA resides at 65.43. This is the level where I'd expect to see absolute and relative strength from this sector:
One real positive on this chart is the strength in the AD line. I see very little distribution. While we've seen sideways consolidation for the past several weeks, the AD line has moved higher. I see that as a positive development and fully expect to see the group to begin to flex its relative muscle soon.
Sector/Industry Focus
Let's revisit yesterday's focus on specialty retailers ($DJUSRS). I was expecting a breakout in this group and we're already seeing it:
We haven't confirmed the breakout just yet, but let's watch the action here this afternoon. A close above 2500.71 is what we're wanting to see. While technically 2501 would be above this level, a more convincing breakout at 2505 (current price) or higher is what I'd really like to see.
ChartLists/Strategies
The Short Squeeze ChartList (SSCL) is at it again. The crazy breakouts here are, at times, mind boggling. It's getting to the point where I'm beginning to consider putting together some sort of portfolio designed specifically to take advantage of this ChartList. These stocks should absolutely be viewed as VERY AGGRESSIVE trades, but the reward potential is stunning. Yesterday, I wrote about specialty retailers ($DJUSRS) and that I was waiting for a breakout above 2500. Today, we're getting it. Many of the top performing SSCL stocks are specialty retailers and today's biggest winner on this list belongs to that group as well (GME):
These are the SSCL stocks with SCTRs above 90. Note the number of DJUSRS stocks on this list. Let's pull up a few of these charts:
GME:
I've written much about GME over the past several months, at one point indicating this could be the "mother of all short squeezes". We can throw valuations right out the door when buyers stampede. And that's what we're seeing today with GME. I mean, if you're short the stock and you see the above, how can your emotions NOT tell you to cover. Shorts are literally trampling one another, trying to exit. And this is the type of short-term inefficiency that we, as traders, can take advantage of - IF you have the knowledge of how the market works.
BBBY:
In addition to BBBY being heavily-shorted, it's also a member of our Aggressive Portfolio. It's a leader in the DJUSRS and the short covering is simply adding more buyers. I believe BBBY is going higher.
CHWY:
I honestly don't understand the shorts' interest in betting against this stock. It's been a huge winner and remains a relative strength leader. The AD line remains strong, suggesting that accumulation continues to take place. Currently, the rising short % of float is simply adding to the performance of CHWY.
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 13:
INFY, INFO, WIT, SJR
Thursday, January 14:
TSM, BLK, FRC, DAL, APHA, PRGS
Economic Reports
December CPI: +0.4% (actual) vs. +0.4% (estimate)
December Core CPI: +0.4% (actual) vs. +0.4% (estimate)
Beige Book released at 2:00pm ET
Happy trading!
Tom