EB Daily Market Report - Thursday, January 14, 2021

Executive Market Summary

• Futures were fairly strong this morning, but the real buying during the trading day continues to take place in small caps ($SML, +2.49%) and mid caps ($MID, +1.38%)
• Our other major indices are higher, but haven't budged much from the opening gap
• Intel (INTC, +4.05%) pushes higher again given that its current CEO is stepping down; INTC is the top performing stock in the Dow Jones today
• Energy (XLE, +3.61%) is performing very well today and is easily on top of the sector leaderboard
• Real estate (XLRE, +0.98%) is next up, extending its advance for a third day
• The 10-year treasury yield ($TNX) is up 4 basis points to 1.13%, lending a helping hand to the financials (XLF, +0.64%); banks ($DJUSBK, +1.95%) are performing extremely well ahead of big earnings reports tomorrow
• Weakness is found today in technology (XLK, -0.47%), especially software ($DJUSSW, -0.86%)

Market Outlook

Monday, January 18th marks the end of the most bullish 2+ month period of the year. That period runs from the October 27th close through the January 18th close. We shouldn't necessarily be bearish because of it, but we should understand that we might lose some of the historical tailwinds that have helped the market the past few months. Since 1950 on the S&P 500, here are future annualized returns by period:

January 19 - January 24: -11.11%

January 25 - February 3: +32.41%

This information provides us no guarantees, but if we do see some selling around options expiration tomorrow or during next week, don't be alarmed because there is seasonal history to support it.

Sector/Industry Focus

One negative for the stock market right now is the push toward a breakdown of the IWF:IWD (growth vs. value) ratio support that I've mentioned so many times near the 1.69 level:

A breakdown wouldn't mean that we should batten down the hatches and expect some sort of major sell off. However, it would mean that we really need to re-evaluate our preference for growth stocks over value stocks in the next phase of this bull market. It could very well impact our portfolio decisions on Tuesday of next week when we unveil our latest Model ETF Portfolio selections.

We also have to keep in mind that many of these growth stocks are heavily traded in options. We could be seeing pullbacks in many names to eliminate MILLIONS and MILLIONS of net in-the-money call premium. I rarely trust much of what I see as we approach monthly options expiry and the week following.

ChartLists/Strategies

The Short Squeeze ChartList (SSCL) is at it again today. I'll focus on individual stocks that are NOT on the SSCL, but it's at least worth checking out the leaderboard today, because it's quite impressive:

That's the Top 15 out of 67 stocks on the SSCL. We've been tracking all of our ChartLists and the SSCL has been our best performing ChartList. But the volatility might be too much for more conservative investors and traders.

Outside of the SSCL, here are two stocks that look interesting to me and could be ripe for turnarounds any time:

NWSA:

As you should already know, I'm generally a big fan of any stock bouncing off its 20 day EMA, especially during a secular bull market advance. NWSA is in our Income Portfolio and has performed well, but it did recently trend lower for a week before rallying today.

SMPL:

When a stock gaps higher on massive volume like SMPL did on December 22nd and continues rising, the intraday low on the day of the gap higher will many times hold as support. That low was 27.85. Today we saw a low that hit 27.77 and SMPL is now trying to reverse. That COULD mark the short-term low as SMPL stabilizes before possibly returning to recent highs. Failure to hold that 27.77 level could mean a gap support test just below 26. A hammer today with a close above the 20 day EMA would be very bullish in my view.

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.

Thursday, January 14:

TSM, BLK, FRC, DAL, APHA, PRGS

Friday, January 15:

JPM, WFC, C, PNC

Economic Reports

Initial jobless claims: 965,000 (actual) vs. 790,000 (estimate)

Happy trading!

Tom