EB Daily Market Report - Tuesday, May 11, 2021
Executive Market Summary
- Futures were very weak overnight and we saw significant gaps lower all over the map
- We've had few economic reports and earnings are slowing down; that combination can lead to complacency and selling, which is what we're currently seeing
- All 11 sectors are lower, led by energy (XLE, -2.35%); technology (XLK, -0.22%), on the other hand, is showing resiliency after significant selling of late
- The 10-year treasury yield ($TNX) is up 2 basis points, but that's done little to buoy financial stocks (XLF, -1.54%)
- Occidental Petroleum (OXY, -7.29%) is a drag in the energy space
- Most commodities are relatively flat on today's session
Market Outlook
I saw topping/reversing candlesticks everywhere yesterday, including DIA (ETF that tracks the Dow Jones). It also was an important high, because it was the Dow Jones first test of a key psychological barrier at 35000. It made sense to at least see a bit of selling after testing this key price level. Here's a look at that reversing candle after a stretch of very strong days:
The negative divergence suggests this 20-day EMA test may not hold. If it doesn't, look for a test of the 50-day SMA. Volume is heavy so today's close will be important. A close at the high of the day would put more of a bullish spin on today's action, while an afternoon selloff would suggest the opposite.
Sector/Industry Focus
If the market's recent nervousness continues, health care (XLV) could benefit. It's been a very weak sector on a relative basis, but it is beginning to show a relative bounce. Furthermore, biotechs ($DJUSBT) are in a bullish ascending triangle pattern (highlighted on this morning's EB May Short Report) and could be well-positioned if health care continues its recent relative strength and bounce:
I generally look for relative strength and avoid trying to call bottoms, but the XLV is showing bottoming head & shoulders relative pattern and biotechs are trying to bounce from a relative support level as well. We'll need to see breakouts of stocks like Amgen (AMGN) and Gilead Sciences (GILD) to see relative strength surge. Here are those two charts and levels to watch for:
AMGN/GILD:
There's nothing to keep biotechs going higher without support from AMGN and GILD, but these are two big names in the industry that would certainly lend support to both absolute and relative strength.
ChartLists/Strategies
If biotechs do reverse, here is the key level to watch on one industry stock from our Strong Earnings ChartList (SECL):
CDMO:
CDMO has been a very strong relative force among biotechs and it's potentially setting a bottom in a bullish ascending triangle pattern. If biotechs rally, I'd certainly look for participation here.
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.
Tuesday, May 11:
EA, PLTR, TDG, RPRX, U, BSY, QS, DAR, PLTK, OPEN, ARMK, KGC, HBI, UPST, PRGO, SLQT, LMND, CHK, IGT, ARRY, MIME, MAC, FUBO
Wednesday, May 12:
CPNG, WIX, DT, DOX, PAAS, LITE, WEN, SONO, TSEM, JACK, BOOT, PLBY, MNKD
Economic Report
None
Happy trading!
Tom