EB Daily Market Report - Friday, July 2, 2021
Market Closed on Monday
The U.S. stock market will be closed on Monday in observance of Independence Day. Enjoy the long weekend! There will be Trading Places Live on Monday morning as a result of the holiday.
Executive Market Summary
- Futures were strong overnight and strengthened further with a solid nonfarm payrolls report
- Nonfarm payrolls were released and reported much higher than expected; the unemployment rate surprisingly rose to 5.9%, well above the 5.6% expectation
- Despite the strong jobs report, the 10-year treasury yield ($TNX) fell 5 basis points to 1.43%
- The dollar (UUP, -0.40%) has pulled back, lifting commodity prices
- Gold ($GOLD, +0.83%), silver ($SILVER, +2.13%), and copper ($COPPER, +1.23%) are all higher today
- Technology (XLK, +1.27%) and health care (XLV, +0.83%) are the leading sectors
- Financials (XLF, -0.14%) have suffered the most, likely due to the falling treasury yields
Market Outlook
Technology (XLK) has been on a roll and is back to its leadership role in helping the stock market reach new highs, but it has become overbought short-term for the first time since the September top:
The black-dotted vertical lines highlight the RSI moving above 70. You can see that RSI remained overbought in September for another couple weeks before a definitive top was reached. We're doing the same thing now as technology ignores the overbought RSI and keeps setting new daily highs. We'll pull back at some point, but the good news is that the daily PPO looks very bullish, so I wouldn't expect much more selling than an eventual test of the 20-day EMA.
Sector/Industry Focus
Software ($DJUSSW) has been behind the huge move higher in technology of late, but the group is now approaching key levels that should at least make us a bit more cautious. Daily RSI is now at 76 and the daily PPO has moved through 2. The past couple highs in the DJUSSW coincided with the PPO reaching roughly 2.5:
I'm not saying that software will top here, because overbought can remain overbought a long time during a secular bull market advance. However, as we move closer and closer to mid-month, I believe the risks will really begin to increase as we approach the worst historical period of the year from July 17th close to the September 27th close.
ChartLists/Strategies
I searched for stocks that could provide us educational tips in our trading routines. Here are two that illustrate how important candlesticks can be in our trading:
SWBI:
That high volume shooting star doji is an ugly development and potential reversal on any uptrending chart. Emotionally, it's difficult to see a stock nearly reach 40 intraday, and then decide to sell at the close after the stock has dropped 4 bucks back to 35. It's easy to say, "I'll sell when it gets back to that high". Unfortunately, the stock market is cruel and rarely gives second chances. Today, we see the result.
VEON:
Anytime I see a huge breakout on heavy volume with a long hollow candle, I look for this to lead to further buying. The breakout level near 1.89 now becomes key initial support on any pullback with the next key support at the 20-day EMA.
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.
Friday, July 2:
None
Tuesday, July 6:
None
Economic Reports
June nonfarm payrolls: 850,000 (actual) vs. 703,000 (estimate)
June private payrolls: 662,000 (actual) vs. 600,000 (estimate)
June unemployment rate: 5.9% (actual) vs. 5.6% (estimate)
June average hourly earnings: +0.3% (actual) vs. +0.4% (estimate)
June factory orders: +1.7% (actual) vs. +1.5% (estimate)
Happy trading!
Tom