EB Daily Market Report - Thursday, September 2, 2021
Executive Market Summary
- Futures were solid overnight and our major indices opened higher
- Small caps ($SML, +0.90%) and mid caps ($MID, +0.68%) are leading today's action
- Value is making a comeback as energy (XLE, +3.21%) is the clear leader
- Crude oil ($WTIC) is jumping 2.8% back above $70 per barrel
- The 10-year treasury yield ($TNX) is flat and still searching for direction
- Real estate (XLRE, -0.44%) and communication services (XLC, -0.26%) are the only two sectors in negative territory today
- The S&P 500 is being led higher mostly by energy names like COG, OXY, DVN, and MRO
- Hormel (HRL, -4.69%) is the worst S&P 500 performer after reporting its latest quarterly results this morning
- Heavy construction ($DJUSHV) is one of the best industry performers as one component, Quanta Services (PWR, +10.21%), is soaring after announcing a $2.7 billion acquisition
Market Outlook
Real estate (XLRE) has been powering ahead and is the best performing sector over the past week. I do have two issues with this group as we move into September, however. First, let's look at the rather nasty negative divergence on the weekly chart:
There definitely seems to be a momentum issue here, but we haven't seen price begin to roll over just yet. A negative divergence on a weekly chart can be problematic if a top prints. I'd watch for a reversing candle. And if it happens in September, I'd be even more cautious than normal because of the second problem - seasonality issues:
This is the last decade's relative performance on the XLRE. September has proven to be a difficult month for the sector, so we'll see what September 2021 holds in store. I think we're fine for now, but be careful if the XLRE reverses.
Sector/Industry Focus
Footwear stocks ($DJUSFT) tend to perform well in the month of September. Here is the seasonal chart:
That's over the past two decades. The average return is similar if we just look at the years since the secular bull market began, 2013-2021. Looking at the technical picture...
Now that the PPO has approached centerline support and the 50-day SMA has been tested, I like the reward to risk entry into this area. NKE, CROX, and SKX all look solid trades, but I prefer the leadership in NKE and CROX.
ChartLists/Strategies
I prefer to trade stocks that have pulled back and showing signs of reversing. On our Bullish Trifecta ChartList, here is 1 such stock:
AAWW:
I like this bounce off the 20-day EMA. I also like to watch for potential breakouts, so here's another stock on the doorstep of a potential breakout.
MAN:
That's a large number of tests of overhead price resistance near 124. It would seem that an eventual breakout, especially if accompanied by increasing volume, would be a very bullish outcome.
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, September 2:
AVGO, DOCU, MDB, HRL, COO, HPE, TTC, GWRE, CIEN, DCI, DOOO, AEO, SAIC, SIG, SCWX, GIII
Friday, September 3:
None
Economic Reports
Initial jobless claims: 340,000 (actual) vs. 350,000 (estimate)
Q2 productivity (2nd estimate): 2.1% (actual) vs. 2.4% (estimate)
August factory orders: +0.4% (actual) vs. +0.3% (estimate)
Happy trading!
Tom