EB Daily Market Report - Friday, September 10 2021

Tom Bowley - September 10, 2021

Executive Market Summary

Futures were strong and we saw gap ups across all of our major indices
U.S. stocks have turned lower since that strong start, however
August PPI came in a bit hotter than expected, keeping the inflation story alive
A judge ruled that Apple (AAPL, -2.47%) can't force developers to use in-app purchasing; gaming stocks are benefiting - see Sector/Industry Focus section below
Kroger (KR, -7.78%) reported quarterly results this morning that disappointed Wall Street; revenue and EPS exceeded expectations, but supply chain issues remain
Materials (XLB, +0.79%) are leading a split market today; 5 sectors are higher, 6 are lower
3 defensive sectors - utilities (XLU, -0.86%), health care (XLV, -0.65%), and real estate (XLRE, -0.46%) are the primary laggards
The 10-year treasury yield ($TNX) is up 4 basis points to 1.34%, perhaps in response to the higher PPI numbers

Market Outlook

I've said it plenty of times before and I'll keep saying it. I don't care nearly as much about the news as I do the REACTION to the news. This morning, the August PPI data showed that inflation at the producer level remains elevated well above the Fed's stated target level. We can take the position that inflation is problematic and exit growth stocks, but that is NOT what Wall Street is doing. Once again, the news came out and reported inflation is higher than what analysts were looking for, yet the REACTION shows Wall Street favoring growth stocks. Here's a 5-day chart of the IWF:IWD and $DJUSGS:$DJUSVS ratios that I've discussed many times:

Check out that relative strength this morning in both ratios. Professional money is BUYING growth stocks relative to value stocks, not the other way around. This is yet another statement, in my opinion, that Wall Street completely agrees with the Fed that inflation issues are transitory.

Sector/Industry Focus

Check out the market reaction to the judge's ruling on Apple (AAPL) in late-morning trading:

I didn't see the exact time of the ruling, but based on the above chart, I'm going to assume it happened just after 11am ET. While AAPL took a clear hit, and on substantial volume (not shown above), its competitors were all rallying on the news.

ChartLists/Strategies

I'd really think about picking your spots to trade over the next week or two. Make sure you check out my ChartWatchers article for this weekend. It should be published around 2:30pm ET today (or just after receiving this DMR). I focused this article on both September options expiration (next Friday is options expiration) and historical trading patterns in September, which can be pretty bearish at times. Based on both of these factors, I'm planning to raise a bit of capital, which I'd look to deploy later in the month leading up to the Q3 earnings season that kicks in in mid-October.

For now, here's another stock (similar to UPS yesterday) that's fallen back to test key gap support. While again it provides no guarantees that we'll see an impending reversal, this is a level where the reward to risk is best.

DVA:

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, September 10:

Monday, September 13:

ORCL

Economic Reports

August PPI: +0.7% (actual) vs. +0.6% (estimate)

August Core PPI: +0.6% (actual) vs. +0.5%( estimate)

Happy trading!

Tom