EB Daily Market Report - Monday, February 22, 2021

Tom Bowley - February 22, 2021

Executive Market Summary

Futures were lower across the board, but weakness was most prevalent on the NASDAQ
That NASDAQ relative weakness has continued throughout the session
Mondays after options expiration tend to be very bearish days, extending the manipulation we see into options expiration Friday
The Dow Jones is the big beneficiary of today's rotation; the Dow currently resides at 31642, which would represent its highest close ever
Energy (XLE, +4.72%) is today's big winner among sectors, while utilities (XLU, -2.54%) tumble
Crude oil ($WTIC, +4.14%) is surging, lifting the energy sector
Technology (XLK, -1.42%) and consumer discretionary (XLY, -1.13%) are also weak, likely due to the options expiration hangover
The 10-year treasury yield ($TNX) is up another 2 basis points to 1.37%

Market Outlook

I'm always nervous short-term around options expiration Friday. The week leading up to options expiration and a few days after can produce short-term selling and there's no doubt in mind that's what's happening right now. For those new to EarningsBeats.com, I am a stock market historian and can produce the numbers to support my short-term claim. The 19th to the 25th of every calendar month tends to be bearish, with perhaps December as the one exception. Dating back to 1950, the S&P 500 has gained, on average, roughly 9% per year. If every day was created equal on the stock market, we'd see close to 9% annualized returns on every calendar day of the month. But that's not how the market operates. Instead, check out these returns from the 19th through the 25th (not just February, but all calendar months):

19th: -33.07%
20th: -7.47%
21st: +5.98%
22nd: -12.90%
23rd: -3.03%
24th: -3.68%
25th: -6.10%

Every single day is below the 9% threshold, several of the days way below this "average". We always need to be more cautious as we work our way through this period of the calendar month.

Sector/Industry Focus

Gambling stocks ($DJUSCA, +4.05%) are having another very strong day and certainly appear to be making a statement that the worst is behind the group. In addition to strong price action and another breakout, the AD line is also surging to a 52-week high:

Boyd Gaming (BYD) is a beneficiary today, breaking out as well. BYD resides on our Strong Earnings ChartList (SECL) and our Strong AD ChartList (SADCL). Here's the current technical view:

Volume is confirming today's breakout, assuming it holds into the close. I would expect higher prices ahead for both the industry and for BYD.

ChartLists/Strategies

I don't have any particular trades today as we could see further weakness this week, especially in areas where we've seen recent strength - like technology and consumer discretionary. I do believe this will present some great short-term opportunities, but it will require some patience. Here is the top of the Strong Earnings ChartList, ranked by SCTR score:

5 of the top 6 ranked stocks are taking a hit today. APPN and ROKU are in technology and SFIX is in consumer discretionary. It just underscores the fact that it doesn't matter whether you're a leader or not, it's options expiration time and these types of stocks are not going to be spared. The only leader gaining ground today is a bank.

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.

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

Tuesday, February 23:

HD, MDT, SQ, INTU, BNS, BMO, TRI, CSGP, ALC, VRSK, XP, EC, CBRE, PXD, PODD, HEI, LDOS, MASI, AGR, PPD, EQH, WLK, PEN, COG, TOL, UPWK, NXST, CROX, FLS, M, SPR, SPT, MATX, LGIH, ARNC, COOP, RRC, MYGN, SYX

Economic Reports

January leading indicators: +0.5% (actual) vs. +0.3% (estimate)

Happy trading!

Tom