EB Daily Market Report - Tuesday, June 22, 2021
Executive Market Summary
- Futures were mixed overnight as our key indices opened near the flat line today
- Action has turned higher with the NASDAQ leading on a relative basis
- After weakening yesterday, the IWF:IWD ratio (growth vs. value) is turning higher and threatening the 1.70 relative resistance level again
- Cryptocurrencies continue to weaken; bitcoin vs. the dollar ($BTCUSD) has key support near 30000, while etherium vs. the dollar ($ETHUSD is looking to hold 1750
- Crude oil ($WTIC, -0.52%) is down fractionally as some profit taking kicks in
- The dollar (UUP) is down slightly as both energy (XLE, +0.36%) and materials (XLB, +0.38%) attempt a recovery
- Consumer discretionary (XLY, +0.98%) is today's best performing sector, led by retail (XRT, +1.15%)
- Plug Power (PLUG, +9.72%) is up nicely, despite missing its quarterly earnings estimate
Market Outlook
Consumer discretionary (XLY) is today's leading sector and I believe this could be the start of a nice run in this sector. The XLY has been an underperformer of late, but secular bull markets draw energy from rotation and the XLY may be the next group to take a turn to lead the market higher. Here's the chart on the group:
There are a lot of positives on this chart. Today's action is filling the gap from early May. A close above 174.20 would be extremely bullish. The daily PPO has now turned definitely positive and relative strength has hit its highest level in 5-6 weeks. After being held back by inflation concerns, the XLY appears poised to sustain an advance as we move toward next month's earnings.
Sector/Industry Focus
While retail stocks were jolted last week by a very disappointing May retail sales report, I believe the selling was way overdone. I recently pointed out that I expect the group to bounce back. Well, that bounce seems to be underway looking at the industry group leaders today within consumer discretionary:
Specialty retailers ($DJUSRS) are having a very strong day and have blasted through the 20-day EMA and are now testing the 50-day SMA. Once that breakout is made, I believe we'll see more and more money rotating into this space. Here's a look at the chart today:
The daily PPO turned up prior to price and relative strength is improving daily. The AD line has remained strong and today we're seeing a successful breakout above the 20-day EMA after 5 unsuccessful tests (red arrows).
ChartLists/Strategies
I specifically looked for consumer discretionary stocks on our various ChartLists that could provide opportunities ahead. Here are 3:
SNBR:
A former portfolio stock, SNBR has printed a potential double bottom at key price support. I'd look for continuing improvement, but keep a closing stop beneath the double bottom:
RL:
A second stock that's been downtrending, but may be seeing it hit key support is RL. I'd look for the 112 level to represent a solid bottom. A short-term trade back to the declining 20-day EMA would be what I'd first expect. Then I'd look for the PPO to begin to strengthen before a more meaningful breakout occurs. All bets are off if 112 price support is lost:
The black arrows highlight the higher highs necessary to maintain an uptrend. But the higher lows must hold. That's where the 112 support comes into play. If money rotates back into discretionary stocks, I believe this support will hold. Just my opinion.
CHS:
CHS has been a much better performer and is much stronger technically. It has a SCTR score of 99 and it's just now bouncing off 20-day EMA support:
There's more to lose on CHS because it's already run quite a bit. But I like the reversal off the 20-day EMA and believe we could see another run to 6.50 to test the recent price high. Failure to hold the 20-day EMA on a closing basis would be short-term cause for concern, though I see CHS moving higher in time.
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, June 22:
PLUG, KFY
Wednesday, June 23:
INFO, CNXC, KBH, FUL, PDCO, WGO, SCS
Economic Reports
May existing home sales: 5,800,000 (actual) vs. 5,715,000 (estimate)
Happy trading!
Tom