EB Daily Market Report - Wednesday, July 21, 2021
Executive Market Summary
- Futures were showing strength overnight, though there was a bit of relative weakness on the NASDAQ to open
- Small cap ($SML) and mid cap ($MID) stocks are showing relative strength for the second straight day
- Cryptocurrencies are strong today after testing major price support - bitcoin ($BTCUSD) and etherium ($ETHUSD) are up 7.82% and 9.64%, respectively
- Commodities are once again mixed, although energy (XLE, +3.78%) are getting a big lift from crude oil prices ($WTIC), which have surged more than 4.6% back above $71 per barrel
- Netflix (NFLX, -3.88%) reported disappointing quarterly results and is the worst S&P 500 performer today
- Solid earnings, however, lifted Chipotle Mexican Grill (CMG, +12.57%) and Interpublic Group of Cos (IPG, +11.92%), the two best perfoming companies on the S&P 500
- Utilities (XLU, -0.93%) is the only sector with any significant weakness on the session, due in part to rising treasury yields
- The 10-year treasury yield ($TNX) has surged 7 basis points back to 1.28%
Market Outlook
Small caps ($SML) and mid caps ($MID) had both been struggling relative to the benchmark S&P 500 and in a clear downtrend. Those relative downtrend lines are on the verge of being tested, so I'd look for short-term outperformance in both asset classes if we see enough relative strength to clear recent relative down channels:
The blue circle shows that the relative hourly PPO has turned much more bullish, but we still need to see relative breakouts. Breaking above the relative down channels would be a starter, but further confirmation would be realized if relative price action can clear relative resistance (red arrows).
Sector/Industry Focus
Now that we're seeing a major bounce in crude oil prices, the April price low in energy shares (XLE) remains the key short-term price support level:
The current bounce could print a right shoulder in a potential head & shoulders topping pattern. I'm not a fan of calling tops based on potential topping patterns. We're in a secular bull market, so most topping patterns will never confirm. The above head & shoulders topping pattern would not confirm unless the XLE were to close back beneath the April low (neckline) near 46. It would be more bearish if volume accelerated on that break of support.
ChartLists/Strategies
I ran the Downtrend Reversal scan against our key ChartLists - Strong Earnings (SECL), Strong Future Earnings (SFECL), and Raised Guidance (RGCL). Here were the 24 charts that were returned:
Of this list, here are 3 that I thought looked promising:
PRTA:
Biotechs are showing absolute and relative strength and PRTA has been a leader in the space. It is quite volatile, however, and will not appeal to those who are risk averse. After 7 days of printing lower highs, PRTA reversed that trend today and has a chance to make another run toward 60-61.
PLCE:
PLCE reversed in a key gap support zone and it's been a leader among apparel retailers ($DJUSRA). I wouldn't be surprised to see the recent low hold as an intermediate-term low.
ANET:
ANET is a leading stock in the telecom equipment group ($DJUSCT). Its AD line continues to trend higher, suggesting accumulation on dips like the recent one. As long as 356 holds on a closing basis, I believe the short-term trend suggests higher prices.
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, July 21:
JNJ, ASML, KO, VZ, NVS, SAP, TXN, ANTM, CCI, CSX, KMI, DFS, LVS, EFX, NDAQ, RCI, NTRS, BKR, STX, MTB, MKTX, WHR, GGG, IPG, ICLR, CMA, LAD, SEIC, KNX, OMF, THC, HOG, SLM, SLG, VMI, PLXS, HCSG, NTGR
Thursday, July 22:
INTC, ABT, DHR, T, UNP, SNAP, MMC, ABB, COF, TWTR, BIIB, NEM, FCX, DOW, AEP, DHI, SIVB, LUV, NUE, VRSN, FITB, FE, DPZ, POOL, GPC, KB, DGX, CE, WRB, ALLE, AAL, SNA, SAM, WSO, CSL, CLF, RHI, EWBC, RS, CBSH, CROX, ORI, SKX, GTLS, BCO, TRN, HTH, TPH
Economic Reports
None
Happy trading!
Tom