EB Daily Market Report - Monday, March 29, 2021
Event Today
We are hosting a 2nd "Changing of the Guard" Members-only webinar this afternoon, designed to be more specific than last week's event, which was open to the public. I'll be discussing SCTRs, AD lines, strengthening industries, and much more. Also, I'll provide at least 10 stocks that have been very weak over the past several weeks, but with solid, if not strengthening, AD lines. They'll include several portfolio stocks, but I'll also be looking outside those stocks for others that have been signaling significant accumulation. Those stocks could be poised for big rallies when prior leading stocks return to favor.
The event begins at 4:30pm ET and I'll do my best to keep this webinar to one hour max. If you cannot make it, we'll make sure you get a copy of the recording - or a link to it. Hope to see you there!
Executive Market Summary
- Futures were mixed overnight, but mostly lower
- After gapping down at the opening bell and selling off early, our major indices rebounded
- Defensive areas of the market remain in charge to start the week as utilities (XLU, +1.40%) and consumer staples (XLP, +0.76%) are among today's leading sectors
- Communication services (XLC, +1.23%) also is performing well, bouncing back after last week's drubbing
- Energy (XLE, -1.37%) and financials (XLF, -1.02%) are underperforming; the former despite a 0.75% rise in crude oil ($WTIC) to over $61 per barrel and the latter despite a solid rise in treasury yields
- The 10-year treasury yield ($TNX) is up 5 basis points to 1.71%, adding to the selling of growth leaders
- Banks ($DJUSBK, -2.20%) are struggling on the Credit Suisse (CS, -10.98%) news that they'll be taking a large hedge fund-related charge
- Boeing (BA, +1.91%) trades higher after Southwest Airlines (LUV, -0.80%) agreed to order 100 737 max planes
Market Outlook
Rotation definitely remains the theme. We've seen several areas of the stock market really struggle of late, with technology (XLK) and small cap stocks ($SML) immediately coming to mind. But other areas are picking up to offset that weakness. While this news is bad for both the XLK and SML in the near-term, the fact that the overall market continues to trade well underscores the "wide participation" theory of a secular bull market. As more and more areas of the market are bullish, shorts have fewer places to turn and must cover. One of the latest areas to show renewed strength is defense ($DJUSDN), which today is threatening to break to a new 9-10 month high:
The group has made a big move higher, but may still have much further to run. The best opportunity for entry would be on a pullback to test the rising 20 day EMA.
Sector/Industry Focus
The most impressive sector right now, in my opinion, is industrials (XLI). I highlighted one area - defense - above in the Market Outlook section. We've seen an XLI breakout in February and every pullback has met buyers at the rising 20 day EMA, which is exactly what you want to see in an uptrend. The PPO is strong and strengthening and volume trends have been strong as well:
The thick green-dotted line that connects key XLI price lows since May 2020 is important, but it's not the key trendline in this chart - at least not for me. Using technical analysis is great, but it's not a substitute for common sense. That green-dotted line currently intersects the price chart near 92.50, which is 60% higher than where the XLI was in May. It's unreasonable to expect any index, sector, or industry group to continue rising at a 60% clip every 10 months. It simply won't happen. So we will see this trendline snap and it'll be probably occur fairly soon. The more important "channel" is the one I've highlighted in blue. This connects the recent highs and then I've dragged that same sloped line down to connect the lows in June, July, and October. This is a much more reasonable trend to follow in 2021.
ChartLists/Strategies
Sticking with the industrials theme today, here are charts of two industrials that look strong to me:
CARR:
While CARR consolidated in its cup, note that its relative strength deteriorated. That's normal during a consolidation period. Perhaps just as important, check out CARR's AD line. While it pulled back and consolidated, the AD line rose to new highs. That's one of my arguments right now for many poorly performing growth stocks. Their price action, relative strength, and SCTR scores are all dropping, but the AD line tells us a story of accumulation, not distribution. Then, as time goes on, we see CARR move back up through key moving averages, regain strength, and ultimately set new highs.
PWR:
PWR is different in that it's been a much steadier performer. We saw huge relative strength and them more leveling out. But, like CARR, it's part of a very strong industry group.
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 29:
None
Tuesday, March 30:
LULU, CHWY, MKC, BNTX, FDS, PVH, BB, PHR
Economic Reports
None
Happy trading!
Tom