EB Daily Market Report - Thursday, September 9, 2021

Tom Bowley - September 09, 2021

Executive Market Summary

Futures were mixed at the opening bell, but bulls quickly took control
That early bullishness was lost, however, and our major indices are mostly lower
Small caps ($SML) are showing a bit of relative strength
Initial jobless claims were reported well below expectations, yet the 10-year treasury yield ($TNX) has fallen 3 basis points to 1.30%
Commodities are also mixed with crude oil ($WTIC) down nearly 2%, while copper ($COPPER) rises more than 1%
Financials (XLF, +0.41%) are the top performing sector, while real estate's (XLRE, -1.57%) recent struggles continue
Clothing & accessories ($DJUSCF, +5.31%) and airlines ($DJUSAR, +3.04%) are two of today's best industry groups
Lululemon Athletica (LULU, +10.58%), a clothing company, is soaring after beating top & bottom line estimates
Gamestop (GME, -0.69%), meanwhile, has recovered nearly all of its earlier losses following a quarterly report that showed EPS well below expectations

Market Outlook

I review two key sentiment charts frequently, usually at least once a week, sometimes a bit more often. As we approach mid-September, which can begin a bit more historical weakness, I'll definitely review them more often. The two sentiment indicators that I follow are (1) the Volatility Index ($VIX) and (2) the equity only put call ratio ($CPCE). Some technicians will follow other sentiment indicators, but the only sentiment indicators that matter to me are based on what the money is doing. There are other sentiment indicators that are widely followed like the weekly NAAIM exposure index (represents the average exposure to U.S. equity markets as reported by NAAIM members) and the AAII sentiment survey (polls AAII members weekly as to where they "feel" the stock market will be in 6 months). Again, I believe a much more reliable indicator quantifies what the money is doing, rather than how those surveyed "feel". So I'll stick to my two indicators, the VIX and the CPCE. Let's look at the VIX today:

VIX:

I watch to see when the correlation of the S&P 500 and VIX move above zero and into positive correlation mode. That's significant because fear, or the VIX, typically rises when stocks, or the S&P 500, are falling. Usually, there's an inverse correlation between the two, which is why you see the correlation mostly at or near -1. But over the past two years, we've seen fear building while the S&P 500 rises on 4 occasions, leading to those positive correlation readings. In all but one, we saw significant selling at the correlation top or shortly thereafter. I think it's important to note when fear is rising while prices are also rising.

Sector/Industry Focus

We know that industrials (XLI) tend to love the month of September, but they can't go higher without first seeing a significant breakout above key price resistance. Take a look:

I would not think bearish thoughts about the XLI. Yes, it's been underperforming while it's consolidating. That's normal. When it breaks out, you want to be make sure that you're AT LEAST equal-weight this sector.

ChartLists/Strategies

Here is one chart sitting squarely on support. It doesn't mean that it will hold, but the reward to risk for a short-term trade is solid:

UPS:

Its industry group, delivery services ($DJUSAF) is today testing price support from where it broke out 4-5 months ago. Also, UPS remains a leader in this space, so if the group bounces off support, I'd certainly expect the leader to bounce as well. There are never any guarantees with any trade, but I love buying stocks at major support - especially a leader in an industry.

(Disclosure: I own shares of UPS)

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 9:

ZS, AFRM, ASO, VRNT, PLAY, ZUMZ

Friday, September 10:

Economic Reports

Initial jobless claims: 310,000 (actual) vs. 344,000 (estimate)

Happy trading!

Tom