EB Daily Market Report - May 24, 2021

Executive Market Summary

• Futures were up overnight and our major indices all gapped higher at the open
• Buying has remained robust throughout the session, though less so among small- and mid-cap stocks
• Cryptocurrencies are continuing their extreme volatility as bitcoin and ethereum surge 13.5% and 26.3%, respectively
• Commodities are mostly higher today as the dollar (UUP) retreats and nears its January 2021 low
• Crude oil ($WTIC) is up nearly 3% and gold, silver, and copper are all higher as well
• Technology (XLK, +1.85%) and consumer discretionary (XLY, +1.84%) are maintaining their leadership roles from last week; this could still be options-related
• Microsoft (MSFT, +2.26%) and Cisco Systems (CSCO, +2.20%) are the leaders on the Dow Jones
• The S&P 500 is being led higher by semiconductors ($DJUSSC, +2.36%), as Applied Materials (AMAT, +4.41%) and NVIDIA (NVDA, +4.38%) are both having very strong days
• It's worth noting that NVDA reports its latest quarterly results on Wednesday after the market closes

Market Outlook

The U.S. Dollar ($USD) reached a short-term top in late March and has been drifting lower ever since. While I continue to expect the dollar to strengthen later in 2021, I won't ignore technical developments that suggest otherwise. The most important indicator, in my view, is price action. There is long-term price support on the USD as follows:

The bottom was reached in 2008. By connecting the subsequent highs, we can establish the top trend line in a potential channel. Then I copied that same slope to the 2011 low and that line is now intersecting the current price low. Therefore, a reversal here could potentially mark a MAJOR low in this longer-term uptrend. Failure, however, would be bearish and loss of the 2018 low near 88 would really begin to question the uptrend that's been in place for more than a decade.

The significance here is that if the dollar were to begin trending back to the upside, current relative strength in materials (XLB) and energy (XLE) would likely be sacrificed. A breakdown, though, would argue for both of these sectors to lead the market during the next phase of this secular bull market. From a trading perspective, I'm fine with short-term trades in the materials and energy space. I'd question that strategy, however, if the dollar reverses and turns higher. In selecting our portfolio stocks last week, I hedged. I wanted exposure in these two sectors in the event their relative strength continues, but I didn't want too much exposure because of the potential of a strengthening dollar.

Sector/Industry Focus

Gambling ($DJUSCA, +2.75%) is at a key inflection point on its chart and is attempting to clear its 20-day EMA. There's a bigger picture uptrend in play, so the significance of today's breakout is fairly big:

The red circles mark both absolute and relative false breakdowns, and the blue circle shows a short-term positive momentum swing as the PPO has turned up above its trigger (or signal) line. If the DJUSCA does close above its 20-day EMA today, watch to see if it can sustain closes above that key moving average in the days ahead.

ChartLists/Strategies

Given the strength today in gambling stocks, let's review the charts of a few names within this industry that have raised guidance in recent weeks (in SCTR order):

EVRI (SCTR 91):

Currently, we have a double top in play, with the best reward-to-risk entry well below in the 16.00-16.50 area. Wall Street definitely favors EVRI in this space, however, as its relative strength has surged while the group overall has performed poorly.

GAN (SCTR 11):

GAN looks much different technically, as its SCTR score of 11 would suggest. It has printed a positive divergence and looks to clear its 20-day EMA today. I believe the odds are solid that GAN is heading for a 50-day SMA test, but the first hurdle is to CLOSE above the 20-day EMA. Another subtle positive is GAN's higher AD line on its two recent price lows.

DKNG (SCTR 2):

DKNG is one of the most volatile stocks in this group and has yet to print any reliable bullish indicators to go long - at least none of the bullish indicators I like to see. DKNG may very well be in a bottoming mode, but there's no positive divergence, which tells me that the odds are that the upcoming 20-day EMA is more likely to fail. Obviously, there are never any guarantees. But that weak (though improving) PPO, relative strength, and AD line all tell me to be very careful with this one. Another move lower to test the recent low could result in a positive divergence, which would change my opinion somewhat.

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, May 24:

NDSN, API

Tuesday, May 25:

INTU, A, AZO, ZS, HTHT, HEI, TOL, JWN, URBN, VSAT, RAMP, VNET, CTRN, RRGB

Economic Reports

None

Happy trading!

Tom