EB Daily Market Report - Thursday, July 8, 2021

Tom Bowley - July 08, 2021

Executive Market Summary

Futures were very weak overnight as growth concerns fueled early selling
Our major indices have climbed well off the lows, however, as many accumulation/distribution lines (AD lines) will likely benefit from this reversal
Energy (XLE, +0.15%) is showing leadership today after recent relative weakness
Financials (XLF, -1.29%) is the worst performing sector as another 2 basis point drop in the 10-year treasury yield ($TNX) to 1.30% spooks investors
Railroads ($DJUSRR, -5.04%) are being hit hard on perceived monopolistic threats by the Biden Administration
Cryptocurrencies are down significantly today as "risk on" areas take a hit
Commodities are mostly lower, with crude oil ($WTIC, +0.87%) one exception
The dollar (UUP) is also down, likely spooked by the prospects of a weaker economy

Market Outlook

The S&P 500 took a big hit, along with our other key U.S. indices, at the opening bell. On Wednesday's late high, a negative divergence did print on the 60-minute chart, although that sign of slowing short-term momentum wasn't present on the other indices. As all of our major indices have gapped beneath their respective 20-hour EMAs, the initial test will be whether we can climb back above this key moving average:

We're going to have pullbacks from time to time. There's no way to avoid them. Sometimes we'll see warning signs ahead of times, other times we won't. Outside of the negative divergence above and general overbought conditions, I didn't really see anything to suggest the kind of opening gap lower that we endured.

Sector/Industry Focus

Railroads ($DJUSRR, -5.04%) today are adding to the transportation ($TRAN) problems of late. We don't usually see the entire industry sell off the way we are today. The bulls are trying to defend a key area of price support. We'll know by the close if they're successful:

I'd expect to see this support area hold, especially since the lower channel line intersects this level as well.

ChartLists/Strategies

If we can get back through 20-hour EMAs on the hourly charts, that would at least be a solid signal that this is more sideways consolidation than an outright downtrend. And that determination would go a long way towards determining whether I'd want to add positions today. Failure to break back above those 20-hour EMAs would increase the likelihood that we haven't seen a short-term bottom in our key indices yet. That would suggest holding off on adding much currently.

Also, given the big gap lower this morning, I'll be watching AD line impacts on stocks that I'm following. Heavy volume and hollow candles tend to be very bullish intermediate-term signals as we witnessed first hand during the early stages of the pandemic.

I definitely like the reversal in many growth stocks like Amazon.com (AMZN), Moderna (MRNA), and Tesla (TSLA). It should boost their AD lines for sure. MRNA and TSLA already have strong AD lines and AMZN's is quickly improving.

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.

Thursday, July 8:

LEVI, DCT, HELE, ACCD

Friday, July 9:

GBX, AZZ

Economic Reports

None

Happy trading!

Tom