EB Daily Market Report - Wednesday, June 30, 2021

Tom Bowley - June 30, 2021

Executive Market Summary

Futures were slightly lower to begin the day, but we've seen a bit more strength throughout the day from the Dow Jones and S&P 500
The 10-year treasury yield ($TNX) took another hit, dropping 4 basis points to 1.44%
Financials (XLF, +0.31%) and industrials (XLI, +0.73%) have both ignored the falling yields and have shown leadership today
Energy (XLE, +1.15%) is today's leading sector as crude oil ($WTIC, +0.82%) rebounds close to $74 per barrel
Economic news was mostly strong, though June Chicago PMI saw a fairly significant decline from May
Earnings reports are fairly quiet, but we will hear from Micron Semiconductor (MU, +2.23%), an influential semi, after the close today
Defensive groups are lagging today with real estate (XLRE, -0.69%) the most notable laggard
Walmart (WMT, +2.81%) is providing the Dow Jones a lift, while the S&P 500's leader is Cabot Oil & Gas (COG, +6.76%)

Market Outlook

The resurgence in consumer discretionary (XLY) of late has lifted the XLY:XLP consumer ratio that we like to follow. While we've been mostly consolidating in this ratio since the beginning of the year, we do have a short-term relative uptrend in place and that's typically quite bullish for equities:

Do you see those 3 blue directional lines? Note that this ratio has turned up each of the last 3 pre-earnings periods. Wall Street is counting on big things from discretionary stocks as earnings season approaches.

Sector/Industry Focus

Over the past 3 months, two keys are emerging relating to sector performance. First, technology (XLK) has regained its leadership role, outperforming the other 10 sectors. Second, the two groups lagging include utilities (XLU) and consumer staples (XLP) - both defensive sectors:

Technology leading and defensive groups lagging paints a very bullish picture to me, suggesting that the current rally in U.S. equities is sustainable.

ChartLists/Strategies

I ran our Downtrend Reversal scan against our key portfolios - Strong Earnings (SECL), Strong Future Earnings (SFECL), and Raised Guidance (RGCL) - and 5 stocks were returned. One of those stocks was QSR, which is the consumer discretionary area and has been under selling pressure throughout June. After 8 straight days of lower price highs, QSR printed a higher high today. This may or may not mark a bottom, but a solid reward-to-risk trade is at the current price level:

In the bottom panel, restaurants ($DJUSRU) might have just printed a relative double bottom. If that's the case and restaurants begin to outperform near-term, QSR could be a beneficiary. The current price level has also been tested multiple times the past few months so a very tight stop - even intraday - could be used beneath the recent price low.

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.

Wednesday, June 30:

MU, STZ, GIS, SJR, BBBY, SCHN

Thursday, July 1:

WBA, MKC, AYI, SMPL, LNN

Economic Reports

June ADP employment report: 692,000 (actual) vs. 550,000 (estimate)

June Chicago PMI: 66.1 (actual) vs. 71.0 (estimate)

May pending home sales: +8.0% (actual) vs. -0.8% (estimate)

Happy trading!

Tom