EB Daily Market Report - Monday, June 21, 2021

Executive Market Summary

• Futures were higher this morning as our major indices opened significantly higher, especially the Dow Jones
• The big gains today are essentially wiping out Friday's losses as both the Dow Jones and S&P 500 have filled their big gaps lower from Thursday's close to Friday's opening bell
• We're seeing a bit of weakness in bonds as the 10-year treasury yield ($TNX) climbs 3 basis points to 1.48%
• Dollar weakness (UUP, -0.52%) has aided both energy (XLE, +3.26%) and materials (XLB, +1.96%)
• Crude oil ($WTIC, +2.79%) has risen another $2 per barrel to $73.64
• Cryptocurrencies are off to a very rough start this week with bitcoin (GBTC, -7.89%) and etherium (ETHE, -9.78%) both down substantially
• Semiconductors ($DJUSSC, -0.20%) are not participating in today's rally, instead falling to test their rising 20-day EMA

Market Outlook

Today, the 10-year treasury yield ($TNX) is up, while the U.S. Dollar (UUP) is down. This is allowing for relative strength today in energy (XLE), materials (XLB), financials (XLF), and industrials (XLI). Here's today's sector breakdown:

Meanwhile, consumer stocks are higher today, but are near the bottom in terms of relative performance. The dollar, after considerable strength last week, has gapped lower, leaving Friday's candle on an "island" - a probably short-term top:

Many short-term dollar tops form with island reversals, so today's gap lower is worth noting. My expectation would perhaps be a short-term move down to test the rising 20-day EMA. That would allow materials an opportunity to recover some of last week's losses. A bigger upside move in materials will likely be dependent upon the dollar breaking down again beneath its now-rising 20-day EMA.

Sector/Industry Focus

Groups that have broken down recently will need to be monitored. Were these breakdowns for real or just head fakes? The first clue will be found on daily charts as industries rebound to test now-declining 20-day EMAs. Failure to break through would suggest that we be very careful in the near-term. As an example, let's take a look at home construction stocks ($DJUSHB):

May existing home sales will be released on Tuesday morning and May new home sales will be released on Wednesday morning. Let's watch to see how the industry reacts to these two economic reports and also to the KB Homes (KBH) earnings report on Wednesday.

A downtrend typically consists of a series of failed 20-day EMA tests, exactly opposite of an uptrend.

ChartLists/Strategies

I ran a scan of stocks on BOTH our Strong Earnings ChartList (SECL) AND our Raised Guidance ChartList (RGCL) that are testing their rising 20-day EMAs. Here were the 7 stocks returned:

INMD looks interesting to me as it's just recently broken out and this is the first 20-day EMA test since that breakout:

The 20-day EMA could serve as closing support for a short-term trade. Those wishing to give the stock a bit more room to the downside might consider the rising 50-day SMA.

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, June 21:

None

Tuesday, June 22:

PLUG, KFY

Economic Reports

None

Happy trading!

Tom