EB Daily Market Report - Thursday, March 25, 2021
Executive Market Summary
- Futures were lower across-the-board, but the Dow Jones and S&P 500 continue to show relative strength
- Copper ($COPPER) is dipping just beneath 4.00 today, where we've seen solid support throughout March
- Other commodities are mostly lower as well, including crude oil ($WTIC, -4.5%)
- Despite a rising dollar (UUP, +0.28%), materials (XLB, +1.20%) is today's leading sector, followed by industrials (XLI, +1.14%) and financials (XLF, +1.10%)
- Bifurcated action persists, however, as communication services (XLC, -0.75%) and technology (XLK, -0.43%) show absolute and relative weakness
- Expedia (EXPE, +4.54%) is having a strong day, while ViacomCBS (VIAC, -6.87%) is again one of the S&P 500's weakest stocks
- Steel ($DJUSST, +4.01%) is helping to lift materials stocks on today's session
Market Outlook
The NASDAQ weakness that we've experienced since mid-February isn't likely to reverse until these three sectors begin to outperform the benchmark S&P 500:
I know it's difficult to consider that the technology and consumer discretionary sectors will lead again, but March historically is not a good month for these two areas relative to the S&P 500. They make hay during the first two months of a calendar quarter as earnings are more in focus. I believe we have another week or so to navigate what's been a rather brutal market for these two areas before the market's attention turns to technology and consumer discretionary. If I'm writing another month from now about how poorly technology is doing, then the recent rotation to "re-opening" stocks will need to be taken much more seriously in 2021.
I believe most areas of the stock market will head higher over the balance of 2021. It simply comes down to relative strength for me.
Sector/Industry Focus
I mentioned steel ($DJUSST) as a leader within the materials sector earlier. While many areas like technology have performed very poorly throughout March (and much of February as well), there are still pockets of strength elsewhere. Steel is one of those pockets. Its PPO has been strengthening and its 20 week EMA test earlier this week was successful:
The blue directional arrow highlights that strengthening price momentum and the green arrow shows that 20 day EMA test. If there's one negative on this chart, it's that the AD line remains very low. It has been improving the past 2 months, but the fact that it hasn't cleared the August high with price action so strong is at least reason for concern.
ChartLists/Strategies
I've received a few questions about the weakly performing tech stocks that we have in our ChartLists and how a short-term trader should approach them. Well, I definitely believe many could provide excellent opportunities after being beaten up so badly over the past several weeks. But just keep in mind that an uptrend cannot begin until key short-term moving averages are cleared and then begin to hold as support, instead of serving as resistance as they are right now. Here are just a few examples of what I'm talking about and I'm using portfolio stocks to illustrate:
TSLA:
PTON:
PYPL:
There are a few consistent themes among these three stocks. First and foremost, they're all in downtrends and struggling to clear 20 day EMA resistance. An uptrend CANNOT begin until this happens, at a minimum. Also, you can see that all three stocks are struggling on a relative basis. We need to see leadership again. Finally, one very encouraging sign, is that despite all the selling over the past several weeks, all 3 show AD lines that remain very strong. I interpret this as I did a year ago - that while many folks are bailing on technology and consumer discretionary stocks, institutions remain quite happy to buy everyone's shares. Of course, there's no guarantee of this until we see these stocks turn back higher.
I'm banking on this renewed strength as attention turns to earnings in April.
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, March 25:
DRI, YY, SAIC, MOMO, PRGS, BLNK
Friday, March 26:
None
Economic Reports
Q4 GDP (Final Estimate): +4.3% vs. +4.1%
Initial jobless claims: 684,000 (actual) vs. 730,000 (estimate)
Happy trading!
Tom