EB Daily Market Report - Wednesday, April 14, 2021

Executive Market Summary

• Futures were higher as we approached the opening bell, but there's been selling pressure throughout much of the day
• Much of the selling today is likely to be options-related - in my opinion
• At yesterday's max pain webinar for April, both the SPY and QQQ were well above their max pain levels; this indicates that short-term selling is a definite possibility
• Copper ($COPPER, +2.08%) is having a strong day after Goldman Sachs raises price forecast
• Energy (XLE, +2.86%) is the strongest sector as it rebounds from recent weakness
• Of the 11 sectors, XLE is the only sector in negative territory over the past month - and it's down a rather large 7.15%; options expiration Friday could be playing a role in this sector's rebound
• Financials (XLF, +0.80%) is today's second best sector after JPM, WFC, and GS all kicked off earnings season with their latest quarterly results; all easily beat forecasts, though WFC (+5.48%) is the big winner

Market Outlook

Given that today is the kickoff of earnings season, it would be an appropriate time to take a look at the banking industry ($DJUSBK) chart:

Any time you see a reversing candle (a shooting star candle is circled in red at the top) and a negative divergence, I'd grow much more cautious. I typically look for a 50-day SMA test and/or a PPO centerline "reset" after this combination appears on a chart. Based on this, don't be shocked if the DJUSBK falls back to the 520 area. A further decline in the 10-year treasury yield ($TNX) would likely be the catalyst for such a drop.

Having said this, I'd respect a breakout as suggesting a new uptrend has begun. At that point, I believe any 50-day SMA test would likely have to wait awhile.

Sector/Industry Focus

I am turning my attention back to software stocks ($DJUSSW). I wrote an article recently that discussed the merits of buying Shopify (SHOP) 4-5 weeks before earnings as the stock has a history of trading higher into its earnings report. It's in the midst of that pre-earnings run now. Because I've seen few warnings, I fully expect that many companies will beat their consensus estimates and are likely to see similar pre-earnings moves higher. In the EB Digest this morning, I highlighted one such stock - Magnite (MGNI).

In the Strategies section below, I highlight a few software stocks worth considering.

Here's the DJUSSW chart, showing the recent price breakout:

The two blue circles are important. At the bottom of the price chart, you'll volume accelerate the past couple trading sessions. That's confirming the current breakout in price. The other blue circle is highlighting the "golden cross" where the short-term moving average has climbed back above the longer-term moving average. This typically occurs as a new uptrend gets underway. The breakout is confirming this signal.

ChartLists/Strategies

The following 5 software stocks are expected to report earnings over the next 3-4 weeks and have started to see recent strength or could begin to see sudden surges in prices. Before I show you the charts, here are the anticipated earnings dates for each:

• CRNC - Thursday, May 6th (before market opens)
• RPD - Thursday, May 6th (after market closes)
• AVLR - Thursday, May 6th (after market closes)
• DDOG - Tuesday, May 11th (after market closes)
• NET - Thursday, May 6th (after market closes)

Now, on to the charts:

CRNC:

Great looking chart. Been through a period of consolidation/weakness, but AD line near a fresh high. Watch for the bullish wedge breakout.

RPD:

Another strong AD line. RPD has already broken back above key moving averages, but today's candle could mark a short-term top at key price resistance. If so, watch for a pullback to test that rising 20-day EMA.

AVLR:

The two blue circles are key here. AVLR recently broke to a fresh new high on its AD line, despite the stock selling off rapidly. That tells me panicked retail traders likely were providing institutions entry at a really good price. I expect a big advance here over the coming weeks. First, we'll need to negotiate short-term price resistance and the 50-day SMA.

DDOG:

DDOG saw its volume confirm yesterday's breakout above 91 price resistance. Like the others, the AD line remains quite strong. I'd expect to see continuing strength here as DDOG marches towards earnings.

NET:

NET is quite possibly the best of these 5. I LOVE the AD line here, breaking to a new high on yesterday's large volume and surge above its 50-day SMA. Look for its rising 20-day EMA to hold as support on any short-term selling episodes.

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.

Wednesday, April 14:

JPM, WFC, GS, INFY, FRC, SJR, BBBY, LOVE

Thursday, April 15:

TSM, UNH, BAC, PEP, C, BLK, SCHW, USB, TFC, PGR, WIT, PPG, DAL, JBHT, WAL, CBSH, AA, RAD

Economic Report

None

Happy trading!

Tom