EB Daily Market Report - Friday, April 23, 2021

Tom Bowley - April 23, 2021

Executive Market Summary

Futures were mixed overnight with the Dow Jones weaker, while both the S&P 500 and NASDAQ opened higher
Action throughout the day, however, has been bullish with the NASDAQ recouping everything lost after President Biden's announcement that he would propose a capital gains tax doubling on the wealthy
New home sales rocketed higher, aiding home construction ($DJUSHB, +1.74%)
10 of 11 sectors are trading higher, with only the defensive consumer staples group (XLP, -0.22%) lower
The 10-year treasury yield ($TNX) is up just 1 basis point, but that isn't holding back financials (XLF, +1.90%), today's top performing sector
Banks ($DJUSBK, +2.72%) are leading the financials to the upside, though all 12 industry groups are rising
Kimberly Clark (KMB, -5.99%) and Intel (INTC, -5.21%) are the two worst performing S&P 500 stocks on the heels of their quarterly earnings reports; the latter is also the worst performing Dow Jones component

Market Outlook

Transportation stocks ($TRAN) remain among the market's leaders, indicative of excellent economic strength ahead. But not all areas are equal within the transports. I see the railroads ($DJUSRR) and truckers ($DJUSTK) as much stronger and more investable based on the following chart:

I know airlines have been getting the headlines lately, but I'd argue both railroads and truckers are in much better shape long-term. They've been leading in the Big Picture. Airlines have been leading lately, but mostly because they fell off the face of the earth on a relative basis during the early stages of the pandemic.

Sector/Industry Focus

Home construction ($DJUSHB) received more good news today as new home sales soared well above expectations. This group continues to strengthen on its long-term weekly chart as momentum (PPO) is rising along with price:

I'd ignore the pandemic-related selloff and view this group as one that's trending higher within a channel. It is near the upper end of this channel, however, so I'd be quick to take short-term profits within the space. I suspect over the next couple months that rotation will result in a bit of selling/consolidation to provide solid reward to risk trading opportunities.

ChartLists/Strategies

As a trader when the stock market is strong, it's not a bad idea to consider taking profits on stocks testing overhead price resistance. I touched on this in a recent DMR. Here is an example of a stock I'd sell if I owned it:

WWW:

I see two potential issues here and if they're not resolved by today's close, I'd take profits. First, volume is light. I'm not a big fan of low volume breakouts. So look for volume accelerating into the close to confirm solid price action. Second, we're right at the prior price high. In fact, we have a higher intraday high. From experience, I know that can mark tops. It doesn't guarantee us that it will in this case, but selling here and booking profits removes ALL of the risk of this trade. What I find very frustrating is holding a stock like this, hoping the breakout is made, only to see it fail and trade back down to 38-39.

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.

Friday, April 23:

HON, AXP, KMB, SLB, RF, GNTX, ALV

Monday, April 26:

TSLA, CNI, NXPI, PHG, CDNS, LU, SBAC, OTIS, AMP, ARE, SSNC, SUI, CHKP, BRO, MASI, PKG, LII, UHS, MKSI, ACI, OMF, AMKR, TNET, SSD, JBT, PCH, WRI, RRC

Economic Report

April PMI composite: 62.2 (actual) vs. 59.5 (estimate)

March new home sales: 1,021,000 (actual) vs. 887,000 (estimate)

Happy trading!

Tom