EB Daily Market Report - Monday, March 8, 2021

Executive Market Summary

• Futures were volatile overnight and we saw bifurcated action at the open and it's continued throughout the trading day
• The Dow Jones cracked 32000 again earlier today, but we've yet to manage to close above that psychological level
• The NASDAQ and growth stocks are being shunned to start this week as the 10-year treasury yield ($TNX) is up 4 basis points and flirting with 1.60%
• The Senate approved the $1.9 trillion stimulus package
• Gold ($GOLD) has dropped another $20 per ounce, or 1.15%; crude oil ($WTIC) is down nearly 2% and is back below $65 per barrel
• Materials (XLB, +1.96%) are leading to the upside, despite a surging dollar (UUP, +0.44%)
• Technology (XLK, -1.42%), meanwhile, is again lagging and contributing to weakness on the NASDAQ

Market Outlook

Right now, the "re-opening" stocks are providing leadership as the Dow Jones looks to break to a new all-time closing high. The previous closing high was 31961.86 on February 24th after it reached an intraday high of 32009.64. At last check, the Dow Jones ($DJI) was trading at 32137, which would mark its first close above 32000 ever. While I'd personally prefer to see NASDAQ stocks lead, we have to keep things in perspective. NASDAQ stocks led by a tremendous margin for YEARS. Taking a back seat short-term is not a huge problem, though it may seem to be at this exact moment. We want the market to move higher and we want wide participation. After the NASDAQ surged to all-time highs repeatedly, we're now seeing other areas of the market play "catch up". In addition to the Dow Jones setting a new high, transports ($TRAN) are doing the same to confirm. This is a big part of the Dow Theory, which is extremely bullish for U.S. equities.

I am seeing a light at the end of the tunnel for growth stocks (IWF). I typically show the IWF vs. the IWD (value), but today let's just look at the hourly chart of the IWF:

There's still more downside room in the IWF, but if we connect two very important tops - in September and February - we establish an upper channel resistance line. By dragging that down to the November low (important low), we can look for a second bottom to establish the lower channel support line. To test it, we'd need to see another 4-5% of short-term weakness. I'm not saying we get there, but if we do, watch for a possible reversal there. In addition, should we print a low beneath last week's low, we'll almost certainly print a 60-minute positive divergence (higher hourly PPO with lower price).

Getting back to that IWF:IWD ratio, I see two upcoming relative support levels as follows:

There's no doubt this relative ratio is in free fall, but I would expect a bounce soon and two logical levels would be 1.55 and/or 1.49.

Finally, rising treasury yields are spooking some investors whether I agree with it or not. Yields rise when treasury prices fall. And the 20 year treasury has been falling like a rock. But the AD line suggests that this fall may not be seeing nearly as much distribution as we might think:

Do you remember one year ago? Stocks were falling, but AD lines were not. Remember that? It turned out that stocks were being accumulated despite the steady drop in our major indices. What happened subsequently? Stocks rose quickly. Well, the current picture looks similar, only with bonds instead of stocks. Are we being duped into thinking bonds are being heavily dumped when, in fact, they're being accumulated while everyone sells (and sending yields higher)? If that's the case, we can expect a bottom in the TLT and a top in the TNX. If yields begin to fall again, I'd fully expect growth stocks to come roaring back.

I'm still looking into this latter chart, but I do find it VERY interesting. It would confirm what David Tepper (head of Appaloosa Mgmt) said earlier today - that he expects interest rates to stabilize. If they stabilize, or perhaps even drop, look for growth stocks to regain a leadership role. It's ok to trade the value side of the market for now as that's what's in favor, just be prepared to switch sides if the TNX begins to fall back and growth stocks begin another uptrend vs. value stocks (ie, IWF:IWD rises).

Sector/Industry Focus

Specialty finance ($DJUSSP) has exploded 5% higher since Friday's intraday low and the group is now in breakout mode:

It would be bullish to confirm this breakout into the close, especially since we also appear to breaking a multi-month relative downtrend line in the bottom panel. I've provided two stock trading candidates below from this industry group in the event we are printing a confirmed breakout.

ChartLists/Strategies

I believe we could be getting close to a tradable bottom in growth stocks based on the analysis provided above. I see the TNX topping short-term and profits being taken in value stocks and reinvested in growth stocks. The 1.50-1.55 support area on the IWF:IWD will be important to watch. A reversal there could lead to excellent relative strength in growth stocks as we move forward. While we wait to see if trading opportunities arise there, here are two stocks in specialty finance that certainly appear to be improving technically:

SPGI:

SPGI hasn't been the best relative performer and its AD line has been less than bullish, but it appears to just be beginning its absolute and relative surge. The next stock, MC, has been the better performer, but maybe SPGI is just getting started.

MC:

MC has been the better stock and a breakout after sideways consolidation would be quite bullish. One positive here is that the AD line is strong, but volume currently is average at best. Unless we see volume accelerate into the close, we might have to endure a bit more consolidation first.

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, March 8:

XPEV, WISH, SFIX, CASY

Tuesday, March 9:

MDB, XM, OSH, SHC, THO, DKS, DQ, NAV, HRB, CMD, ABM, AVAV, CLNE, MTLS, EVRI, PLCE, AVID

Economic Reports

January wholesale inventories: +1.3% (actual) vs. +1.3% (estimate)

Happy trading!

Tom