EB Daily Market Report - Tuesday, August 10, 2021
Today's Event
We've been working hard, updating the Earnings Reaction spreadsheet, which will be available for download either later today or tomorrow. There's still plenty of earnings season left, but we'll provide everyone with all earnings to date.
Later today, at 4:30pm ET, I'll be discussing my analysis of this spreadsheet, highlighting sectors, industry groups, and individual stocks that have benefited from earnings.....and those that haven't. It should be very educational and provide a different look at what we might expect as hundreds of companies continue to report quarterly results over the next few weeks.
I'll also provide everyone with 10 of the best earnings reports and reactions, in my opinion. All of this will start at 4:30pm ET, though the webinar room will open by 4:00pm ET. You can access the webinar room at any time after 4:00pm ET by clicking on the link below:
https://earningsbeats.zoom.us/j/82086195111
Hope to see you there!
Executive Market Summary
- Futures were fractionally higher, with no real difference between asset classes
- That completely changed after the opening bell as money rotated to small and mid cap stocks, value stocks, re-opening stocks, etc.
- Energy (XLE, +1.64%) and materials (XLB, +1.44%) are today's biggest beneficiaries
- The 10-year treasury yield ($TNX) has gained another 3 basis points to 1.34%, enabling further strength in financials (XLF, +0.98%); industrials (XLI, +0.97%) have also begun to show relative strength
- Meanwhile, technology (XLK, -0.73%) has turned over its recent leadership role
- Semiconductors ($DJUSSC, -1.20%) and software ($DJUSSW, -0.83%) have been primary laggards in technology
- Kansas City Southern (KSC, +7.00%) is one of the best performing S&P 500 companies today after receiving an unsolicited proposal from Canadian Pacific (CP, -1.21%)
Market Outlook
Treasury yields are moving higher again, which I believe is very good news, because eventually they'll be higher as a result of economic strength. But, if you'd like to take the other side of an argument, you could say that the rates are moving higher and traders are bailing out of treasuries because of two upcoming inflation reports - July CPI on Wednesday and PPI on Thursday. Inflation reports absolutely could create a toxic environment for growth stocks.....or maybe not. On the following chart of the DJUSGS:DJUSVS (growth vs. value), I've highlighted each of the past 6 monthly CPI report release dates with black-dotted vertical lines:
The January CPI report (released in February) and the April CPI report (released in May) both were released just ahead of significant selling of growth stocks. Will it happen again this month? It's very possible. I'm a big fan of growth stocks moving forward, but I cannot prevent the crazy volatility and rotational shift that we've seen in 2021. Honestly, I feel that long-term investors have the upper hand in 2021. The U.S. stock market has consistently moved higher, benefiting those who are diversified because leadership remains, it's just rotated nauseously. Traders are left trying to guess from week-to-week and month-to-month (sometimes day-to-day) which areas to "stock" up on.
Sector/Industry Focus
The crazy rotation from sector to sector has turned up the craziness another notch today. After weeks of underperformance by energy (XLE), materials (XLB), industrials (XLI), and financials (XLF), they're suddenly on fire again. Here's the 3-month sector performance chart:
Those four sectors that I listed above have not performed well, especially energy. If you recall, though, energy was the best performing group prior to this recent weakness. And if we look at today's action, it's like everything that's been working has been ignored today, while these weak areas regain their short-term muscle:
The one consistency has been that no sectors have broken down throughout 2021. They each go through periods of relative weakness, but their absolute charts do not break down. THAT is the sign of a sustainable secular bull market and a secular bull market is exactly what we've been witnessing.
U.S. indices have consistently climbed higher, but leadership continues to rotate underneath the surface. That has made for extremely volatile trading success/failure - at least in my opinion. I know personally that I have very solid stretches, followed by extreme whipsaw. Also, during each of the past few "Portfolio Drafts", I've been very bullish about the overall direction of stocks, but I've been cautious about leadership. The pandemic has created these rolling pockets of strength and weakness, more so than at any time that I can recall.
ChartLists/Strategies
After reviewing many of the top performing stocks from our Earnings Reaction spreadsheet, which we'll be discussing in our event later today, here are a couple of potential trades given recent pullbacks:
MYGN:
MYGN knocked it out of the park with its quarterly earnings. They reported a profit of $.12, while Wall Street was expecting them to report a loss of $.07. They also crushed revenue expectations, posting an actual number of $189.4 million, well ahead of its $166.7 million estimate. The selling the past week or so triggered a 20-day EMA test earlier today. (Disclosure: I own MYGN)
PENN:
Are you a bottom fisher? If so, I'd keep a close eye on PENN. There are some early signs that the stock could be turning higher. I like the recent break to the upside in the AD line. The reaction after earnings suggests heavy accumulation as well. There's still overhead price resistance near 75. That's been a big level over the past year, so I'd like to see that price confirmation and a breakout. Buying in now is a bit more risky, in my opinion, and I do not own PENN presently.
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, August 10:
COIN, SYY, TDG, U, BSY, MRVI, MCFE, DAR, UPST, DOCS, ARMK, IIVI, CHK, FUBO, VSH, TDUP, EPAY, LRN, PLBY
Wednesday, August 11:
NIO, CPNG, EBAY, FNV, RPRX, APP, BEKE, WIX, MQ, AZPN, CAE, LFST, OPEN, RGLD, PRGO, BMBL, WEN, GOOS, SONO, RXT, ROOT, ARRY, BLNK
Economic Reports
Q2 productivity: 2.3% (actual) vs. 3.5% (estimate)
Happy trading!
Tom