EB Daily Market Report - Friday, August 13, 2021
Executive Market Summary
- Futures were modestly higher overnight and our key indices - Dow Jones, S&P 500, and NASDAQ - all opened higher
- Small caps ($SML) and mid caps ($MID) have been underperformers all day long
- Commodities, other than oil, are mostly higher, led by silver ($SILVER, +2.55%) and gold ($GOLD, +1.59%)
- Crude oil ($WTIC) has fallen back below $68 per barrel, dropping 1.7%
- The 10-year treasury yield ($TNX) fell 7 basis points to 1.30%, testing its now-rising 20-day EMA
- Weakening crude and falling yields sent both energy (XLE, -1.02%) and financials (XLF, -0.85%) lower
- Defensive groups were supported today as consumer staples (XLP, +0.86%) and utilities (XLU, +0.72%) led the charge
- Walt Disney (DIS, +1.14%) spiked higher after beating Wall Street estimates, but has been selling off since the opening bell
- Energy names litter the bottom of the S&P 500 performers
Market Outlook
As transportation stocks ($TRAN) have bounced this week, it's opened up the possibility of a breakout in industrials (XLI). The XLI has been the weakest relative performer among the 5 aggressive sectors, so a breakout would be most welcome for sure:
There's a lot to like about this chart. First, the XLI ran into momentum issues earlier this year and the rectangular consolidation resolved it. While consolidating, the XLI's relative weakness vs. the S&P 500 was quite apparent. But after testing its relative strength trendline last week, the group's been on the move again. Finally, you can see that daily PPO strengthening above its centerline (blue circle). The last time it looked like this was February, and the XLI went on a tear after that breakout.
Sector/Industry Focus
After reversing on Tuesday, gold (GLD) has had a very strong week, but I'd continue to avoid it, along with many commodities. GLD's long-term track record is horrid and any relative strength will be highly dependent on a weak dollar, which I do not believe will materialize. If you believe the dollar will grow weaker in time, then GLD could certainly present a nice hedging opportunity. Currently, however, it is likely to run into 20-day EMA resistance and its relative weakness will most likely take over:
The PPO remains weak and below the zero line. In addition, GLD has been among the worst relative performers over the past year, just recently setting a new 52-week relative low. I'd continue to avoid gold.
ChartLists/Strategies
The Short Squeeze ChartList (SSCL) has seen a number of its component stocks experience significant volatility recently, but most have turned lower. There are a few exceptions, however:
MSTR:
MSTR saw a big breakout, and while it's pulled back, it remains well above key price support just below the 700 price level.
GEO:
The run here has been impressive and that PPO has soared as a result. After climbing 25% in the past couple weeks, though, it's difficult to chase this one. The green arrow marks the rising 20-day EMA test, where a better reward to risk entry resides.
INO:
This is one to keep an eye on. Volume has picked up recently and INO is up against a critical price resistance level near 10. A break above that level could lead to some serious short covering.
There are other interesting stocks on the SSCL like CRTX, but it exploded higher earlier this week. You can't take a shot with this one unless you're willing to take on tremendous risk.
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, August 13:
None
Monday, August 16:
RBLX, TME, EDR, OTLY, FN, TLS, NIU, POWW
Economic Reports
August consumer sentiment: 70.2 (actual) vs. 81.4 (estimate)
Happy trading!
Tom