EB Daily Market Report - Friday, February 19, 2021

Tom Bowley - February 19, 2021

The DRAFT

On Sunday evening at 7:00pm ET, I'll announce the 10 equal-weighted stocks that will represent our four portfolios for the next 3 months. We'll send out room instructions before the event on Sunday. If you cannot make it, no worries. We record all of our webinars and we'll try to have this recording available for your review by late-Sunday evening.

Executive Market Summary

Futures were higher across the board as we opened for trading today
Only small caps have held onto their opening gains, however, as options expiration likely wears on larger cap stocks
Copper ($COPPER, +4.08%) has broken the $4 level that I mentioned in yesterday's DMR
Materials (XLB, +1.85%), industrials (XLI, +1.71%), and energy (XLE, +1.61%) are atop the sector leaderboard
Defensive areas are mostly being ignored again today with utilities (XLU, -1.36%) and consumer staples (XLP, -1.11%) the only two sectors down more than 1%
Deere & Co (DE, +10.61%) posted excellent quarterly results, leading industrials higher
Applied Materials (AMAT, +6.30%) pulled off the trifecta - beat revenue estimates, beat EPS estimates, and raised guidance - helping to lead the semiconductor group ($DJUSSC, +2.11%) higher

Market Outlook

Higher copper prices ($COPPER) are bullish for global equity markets. Copper prices move higher when global demand causes it. Global demand doesn't accelerate unless global economies strengthen. The correlation coefficient indicator at StockCharts.com tells us that when copper is trending higher, it's very bullish for global equities:

Note first of all that this copper chart is as of Thursday's close and does not include today's rally. Technically, it's important to note the long-term double bottom that printed, followed by the late-2020 breakout. This is a harbinger of higher prices to come down the road. And that is a signal that global traders see economic expansion ahead all over the world. Finally, the correlation is almost always above zero, suggesting positive correlation between the direction of copper prices and the direction of global equities ($DJW is used as the benchmark here).

Sector/Industry Focus

Commercial vehicles & trucks ($DJUSHR, +5.78%) are breaking out again, this time on the heels of an excellent quarterly earnings report from Deere & Co (DE, +10.61%). DE produced revenues and EPS that easily topped expectations and it's driving the entire group higher:

That bottom panel is what attracted us to this group 3 months ago when we selected our portfolio stocks on November 19, 2020. This group is punishing the benchmark S&P 500 and likely to continue doing so. DE very well could be in our portfolios again come Sunday night when our latest stock selections are announced for each portfolio.

ChartLists/Strategies

I ran our Downtrend Reversal scan against both our Strong Earnings and Strong Future Earnings ChartLists and 24 stocks were returned. Here were the Top 20 in terms of SCTR scores:

ENPH:

I literally tried to buy ENPH in the last few seconds of Thursday's action and missed getting it by about 2 seconds. I liked it because I saw it had successfully held previous price support after being below it intraday. These types of false breakdowns can trigger an ensuing rally. Today's rebound resulted in ENPH being included in our Downtrend Reversal results.

SRRK:

If you recall, yesterday I attempted to predict reversals before they happened with the use of positive divergences on hourly charts. SRRK was one of two stocks featured and it did reverse at a key price support level with an hourly positive divergence in play. Sometimes these reversals are short-lived. The key test will be whether SRRK can clear its 50 hour SMA. If so, then there would appear to be more upside ahead. Another price breakdown, however, would be more bearish. (Disclosure: I own SRRK)

IQV:

I had previously discussed IQV after it reported excellent quarterly earnings results. I mentioned that it had exceptional relative strength vs. its health care provider peers ($DJUSHP). But look at this chart carefully, because I see this type of market reaction quite often. There's the gap up after earnings and a black-filled candle prints (up day, but closes below the open). From there, many times a stock will trend lower short-term to fill its gap or test its rising 20 day EMA. In this case, it was the latter. IQV is a leading stock, however, and today's inclusion on our Downtrend Reversal scan could jumpstart another advance. (Disclosure: I own IQV)

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.

Friday, February 19:

DE, MGA, DTE, ITT

Monday, February 22:

CDNS, PANW, SBAC, RSG, WMB, OXY, DISCA, O, ZI, OKE, IR, DISH, RCL, EXR, TREX, FIVN, FANG, NDSN, MRO, KFY, GDOT, RIG, CTB, EVER

Economic Reports

February PMI composite flash: 58.8 (actual) vs. 57.9 (estimate)

January existing home sales: 6,690,000 (actual) vs. 6,600,000 (estimate)

Happy trading!

Tom