EB Daily Market Report - Thursday, February 11, 2021

Executive Market Summary

• Futures were higher across the board this morning, but only the NASDAQ is holding onto gains with an hour left in trading
• Commodities are mostly lower as the dollar (UUP) attempts to rebound from recent selling
• The 10-year treasury yield ($TNX) climbs slightly to 1.16%, despite weak initial jobless claims
• Technology (XLK, +0.73%) and health care (XLV, +0.11%) are the only two sectors gaining ground today
• Semiconductors ($DJUSSC, +2.69%), one of the most consistent winners over the past couple years, is leading technology higher
• Semiconductor equipment manufacturers like KLAC, LRCX, and AMAT are leading the S&P 500
• Energy (XLE, -2.10%) is on the defensive today as sellers dominate

Market Outlook

Transportation stocks ($TRAN) saw a relative breakdown recently, which is of concern as strong transports can be extremely beneficial to a secular bull market. We remain in an overall uptrend, but I really don't want to see the $TRAN:$SPX ratio break to new lows:

Price hasn't broken down, but we did lose relative price support in late January. I'll be watching transports closely to see if they can regain a bit of relative strength. Breaking out above the January high at 13250 would be a great start.

Sector/Industry Focus

Specialty finance ($DJUSSP) had been very weak on a relative basis as it struggled to break out on an absolute basis. Now that the latter is no longer a problem, I believe there's a reasonable chance that the recent relative strength will continue to strengthen, but there are key levels to watch:

Thus far, the breakout of the ascending triangle is not exactly confirming. There's been quite a bit of hesitation. We want to see a definitive move higher. Also, the relative weakness has been contained in the channel reflected above. The first step is to clear the most recent relative price high (red arrow). After that, a breakout of the current down channel is necessary. When that occurs, we'll want to pay much closer attention to this area of the market. For now, the leaders are interesting, but more rotation into this group is needed.

ChartLists/Strategies

The U.S. stock market has been strong and many stocks are in lengthy uptrends. But there are still plenty of stocks that have endured weeks and weeks of consolidation and are either just breaking back to the upside or approaching a critical breakout. I've discussed Zoom Video Communications (ZM) recently and even highlighted it on last weekend's EB Weekly Portfolio Report. ZM has transformed from a downtrending stock to an uptrending one:

ZM:

The blue-dotted vertical line is about the time this transition took place. Relative strength was building prior to that point, but we hadn't broken the downtrend. Once that downtrend was broken and ZM began trading above its key moving averages, its PPO went positive as well. I would now consider those moving averages to be excellent support during any short-term selling.

Another stock that's showing similar reversing characteristics is S&P Global Inc. (SPGI). SPGI has been struggling for many weeks, but recent strength broke that downtrend and we just saw a better-than-expected earnings report with raised guidance. That's enabled SPGI to really gain strength in the past couple sessions.

SPGI:

The timing here is good because the specialty finance area ($DJUSSP) just broke out and SPGI is beginning to show leadership again. This combination is likely to send SPGI higher in coming days and weeks.

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, February 11:

DIS, PEP, AZN, DUK, ILMN, BAM, KHC, DLR, DXCM, DDOG, SGEN, AFRM, NET, TSN, MT, VRSN, ZBRA, LH, EXPE, K, TAP, HUBS, ALNY, BIO, QSR, AEM, GNRC, CGNX, GDDY, POOL, ARES, DVA, MHK, BWA, RARE, WSO, BL, REG, KIM, IRDM, HII, YETI, CYBR, TPX, FROG, AUY, JCOM, CARG, SVMK, TWOU, NSP, NUS, TEX, SSTK, ACB, COHU, VCRA, BJRI, VECO

Friday, February 12:

ENB, D, MCO, FTS, WPC, NWL, HUN, PRLB, FNMA

Economic Reports

Initial jobless claims: 793,000 (actual) vs. 760,000 (estimate)

Happy trading!

Tom