EB Daily Market Report - Monday, April 12, 2021
ChartList Update and Event Today
The Strong ETF ChartList has been updated on our website and there is a "Sneak Preview - Model ETF Portfolio" event at 4:30pm ET later today. Here's the room link:
https://earningsbeats.zoom.us/j/88414395097
Also, tomorrow is the Tuesday before Friday options expiration, so I'll be hosting our monthly Max Pain session. We'll provide a room link tomorrow for that event.
Executive Market Summary
- Futures were lower overnight to kick off a new trading week
- The 10-year treasury yield ($TNX) is relatively flat today
- Commodities are mostly lower, though crude oil ($WTIC) is up 0.7%
- News is quiet today, but tomorrow we'll get a CPI report that could have a scary headline number
- Earnings season will begin on Wednesday as JPM, WFC, and GS reports their quarterly results
- Consumer stocks are higher today with discretionary (XLY, +0.36%) holding a slight advantage over staples (XLP, +0.32%)
- Energy (XLE, -0.93%) is the primary laggard, despite the fractional gain today in crude
- Two former high-fliers, NVDA and TSLA, are leading the S&P 500 today; meanwhile, INTC is down 4.84%, weighing on the Dow Jones
Market Outlook
If there's one worry I have about the stock market, it's the reaction that we might see after inflation reports come out the next few months. I don't believe inflation is a problem, mind you, but if the media begins to make it a problem, then it becomes one. We saw this with interest rates. They were a problem.....until, all of a sudden, they weren't.
Tomorrow morning, we'll get the March CPI report. If you're not aware, the CPI took a big hit last March as the pandemic set in and prices tumbled. In fact, CPI was negative for 3 straight months, March through May. As these CPI reports come out during the next 3 months, we're going to see year-over-year rises in inflation that are alarming. But the Fed has said that inflation issues will be transitory. Once we move past the May report, I believe inflation will once again move toward the Fed's 2% target.
On StockCharts.com, you can track inflation. The core CPI uses the symbol "$$CCPI". Here's how it looks on a monthly chart over the past two decades:
The Core CPI rarely moves lower. That's why the $$CCPI is moving higher nearly every month for the past 20 years. The pandemic, however, created a situation where prices fell for 3 months (red circle at top of chart). Now that we're going to see a return to normal of inflation, the year-over-year numbers will be inflated as we're comparing the current year's rising prices to last year's falling prices. The headline inflation numbers will most definitely rise. If Wall Street wants another selloff, they simply need to talk these "inflated" numbers to the media and discuss the hyper-inflation that's coming down the road (sarcasm intended).
Sector/Industry Focus
Renewable energy ($DWCREE) is the worst performing industry group in terms of (1) today's performance, (2) weekly performance, (3) monthly performance, and (4) 3-month performance. Needless to say, 2021 has not been kind to this group. Over the past 5 years, the worst two consecutive months for seasonal performance have been February and March. The DWCREE has averaged declining nearly 9% over these two months the past 5 years. However, the next four months - April through July - have averaged gaining nearly 29% over the past 5 years. So seasonality should begin to favor the group soon. Also, we have options expiring later this week and many of these renewable energy names are DEEP in the money on the put side. That means it would behoove market makers to drive prices higher later this week to save a ton of net put premium. Will it happen? Who knows! We're about to find out.
Here's a look at the DWCREE chart to get a sense of its key short-term support - both absolute and relative:
From an absolute price perspective, the DWCREE has a fairly wide range of support from 220-250, but the relative strength is currently testing a trendline. Therefore, a reversal at this level, if one were to occur, should be respected - especially given market maker motives related to options.
ChartLists/Strategies
It might be a tad early to start thinking Max Pain (we have our April Max Pain webinar tomorrow), but options do expire this Friday, and if there's a group that could benefit from it, it's renewable energy. This industry has been under intense selling pressure and many stocks in the space have a TON of net in-the-money put premium. It's a volatile group, so to trade these stocks, you may need a crash helmet.
Still, opportunities abound with market makers having a big interest in seeing many of these stocks rise later this week and/or into next week. I'll give you the one that I've begun accumulating (at a loss thus far):
PLUG:
Please remember that max pain provides us NO guarantees, but there is profit incentive for market makers to reverse this downtrend at some point - in my opinion. Let me show you what the PLUG options picture looks like right now for April:
The number in the far left column represents the open CALL interest, while the number in the far right column represents the open PUT interest. Those PLUG 45 puts - 5505 of them - have a value of $8.6 million based on the current 29.33 price. While the options grid starts at 30 calls and puts, I can tell you that there are very few open calls below 30. If PLUG continues to fall, the value of these puts will escalate rapidly.
Again, no guarantee we'll see a reversal, but any time there's financial incentive for market makers to drive the price of a security higher or lower, I pay close attention.
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, April 12:
APHA, SLP
Tuesday, April 13:
FAST
Economic Report
None
Happy trading!
Tom