EB Daily Market Report - Thursday, May 6, 2021

Tom Bowley - May 06, 2021

Executive Market Summary

Futures were pointing to a slightly higher open this morning and we opened up mostly positive, though the NASDAQ saw early selling again
Initial jobless claims were reported under 500,000 pre-market, the lowest since the pandemic began
The dollar (UUP) is down after failing to break above its 20-day EMA; I still see the dollar gaining later this year, but for now the coast is clear for energy (XLE, -0.36%) and materials (XLB, -0.09%)
Gold ($GOLD) is a beneficiary of the weakening dollar, jumping $30 per ounce today and above $1800 for the first time since February
Despite the solid economic news, the 10-year treasury ($TNX) has drifted lower to 1.57%
Earnings continue to drive stocks; Kelloggs (K, +7.56%) is spiking after reporting its latest results to lead the S&P 500, while Etsy (ETSY, -14.56%) tumbles after indicating its pandemic-related growth would likely slow
We'll get the latest nonfarm payroll numbers tomorrow morning, which typically has a big stock market effect

Market Outlook

The Dow Jones is setting another all-time high today and its move is quite impressive. The 60-minute chart remains quite bullish. After recent consolidation, this index of conglomerates has just broken out of a tight consolidation period with an hourly PPO that's strengthening:

The daily chart shows a negative divergence, so when this run ends, we could be looking at a bit more weakness ahead. But for now, and as long as the Dow Jones remains above its 20-hour EMA, I see short-term blue skies ahead.

Sector/Industry Focus

Transportation services ($DJUSTS) is showing very strong momentum, and it appears to be gaining further strength to me. It's part of a very strong industrials sector (XLI) and is benefiting from rotation into this sector and industry:

ChartLists/Strategies

The market's reaction to the earnings of growth companies vs. value companies is so polar opposite right now and we need to be aware of it as traders. Many growth companies are posting incredible earnings growth numbers, but being treated as if they're on the verge of bankruptcy. It all comes down to "perspective" and the "big picture". If you've bought growth stocks at any point over the past couple months, you likely believe these companies are the worst companies ever. They're not. But rotation doesn't care about long-term prospects. Right now, materials (XLB), energy (XLE), financials (XLF), and industrials (XLI) have bullish momentum. Very little else is keeping up. In fact, most other areas are downright bearish right now. There are industry pockets of strength in the other sectors, but the prominent strength is in the four sectors mentioned above. I would look for breakouts in these areas or recent breakouts followed by pullbacks to the rising 20 day EMA. I want to focus on the latter for today. Using the 20-day EMA test scan on our website and filtering further by simply using the four sectors above, this what the scan would look like:

Here are the results:

COWN is an Income Portfolio stock of ours and looks good on this 20-day EMA test, but here would be my favorite on this list:

AER:

Transportation services ($DJUSTS) is featured above and the group is strengthening. AER, at its recent top, was a leader in this space, but has lost a bit of relative strength as it's consolidated. Do you see that false breakout? That's typically a sign that a stock is not quite ready to move higher. AER further consolidated and is testing its 20-day EMA. There's no guarantee that AER will bounce off the 20-day EMA and break out now as it could further consolidate. We could see a 50-day SMA test. Or we could see the top of gap support eventually tested. Therefore, trading strategies for the stock will vary. But a very low reward-to-risk strategy would be to buy on the 20-day EMA, expecting it to hold and keeping a very tight stop just under. Another strategy might be to buy a small position and add if the other support levels are tested. It really depends on the individual trader's style.

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, May 6:

LIN, BUD, SQ, FIS, ZTS, MRNA, BDX, REGN, MNST, CVNA, EOG, ROKU, AIG, MCHP, APTV, CNQ, MSI, MTD, BLL, MCK, MT, W, MGA, PTON, ED, NET, EPAM, EXPE, VIAC, DDOG, ET, PPL, IAC, K, WPM, PODD, AES, CAH, LYV, PBA, TECH, BIP, NWSA, GH, XRAY, CGNX, EVRG, PENN, LNT, HWM, PWR, TPR, CNP, FNF, OTEX, BILL, PLUG, TPL, AVLR, FND, AMH, IRM, BKI, VER, CABO, REG, DBX, OLED, KL, BLDR, PCTY, COLD, MIDD, NCLH, STOR, AQN, AXON, NTRA, NLSN, HII, APPN, BYND, FLIR, ANGI, PLNT, TRIP, FVRR, TDC, AL, NOMD, SYNA, QDEL, FTDR, SHAK, RPD, AMC, FROG, HAIN, KTB, STMP, WD, HL, SFM, YELP, CARG, TDS, MUR, AXNX, SVMK, SBH, FLGT, IRTC, EB, GPRO, GRPN, ACMR, LASR, FNKO

Friday, May 7:

CI, ENB, TRP, TU, DKNG, VTR, CVE, ELAN, ATH, LEA, ITT, CCJ, NKLA, SPB, FLR, CRON, MD, AVNS, AMCX, GVA, ROAD, AXL

Economic Report

Initial jobless claims: 498,000 (actual) vs. 533,000 (estimate)

Q1 productivity: 5.4% (actual) vs. 3.7% (estimate)

Happy trading!

Tom