EB Daily Market Report - Wednesday, September 29, 2021
Executive Market Summary
- Futures were higher overnight as traders appeared ready to buy many of the beaten-down stocks from Tuesday's big selloff
- August pending home sales SOARED, blowing past estimates; home construction ($DJUSHB, +1.86%) is one of the strongest discretionary areas as a result, bouncing off key support just below 1400
- The dollar (UUP, +0.52%) is breaking to an 11-month high today; be careful with energy (XLE, +0.61%) and materials (XLB, +0.06%), of which the latter is today's worst performing sector
- Crude oil ($WTIC, +0.20%) is relatively flat, hovering just above $75 per barrel
- The four defensive sectors - XLU, XLP, XLRE, XLV - are your four leading sectors today on the rebound attempt
- Dollar Tree (DLTR, +15.99%) announced higher price merchandise will be featured in their stores; it's the best performing S&P 500 stock today
- Technology (XLK, +0.25%) is 10th out of 11 sectors today as weakness in semiconductors ($DJUSSC, -1.21%) continues; renewable energy ($DWCREE, -2.41%) is also very weak
- Micron Technology (MU, -1.61%) is lower, despite beating both revenue and EPS consensus estimates
Market Outlook
While the rebound feels nice so far, I'm far from convinced that the selling is behind us. First and foremost, buying is concentrated today in defensive areas, as can be seen by this intraday sector leaderboard:
Technology (XLK), hardest hit on Tuesday, is again near the bottom of the leaderboard. I'd really like to see that change. I do like the rebound in consumer discretionary (XLY), however, as its recent breakout to an all-time high points to future leadership.
Sector/Industry Focus
I'm most concerned about long-term sector rotation and performance. But, the short-term relative action among sectors is also worth paying attention to during short-term downtrends. Here are two charts, one featuring the aggressive stocks and the other featuring defensive stocks to help us assess the likelihood of further market deterioration:
Aggressive Sectors - XLK, XLY, XLC, XLF, XLI:
The first thing to understand about pullbacks is this: aggressive sectors tend to underperform. The fact that 3 of these groups are OUTperforming during the September swoon tells me that this selling is not likely to last. However, we're unlikely to rally much when 1 of the underperforming groups is technology. Technology represents almost one-quarter of the S&P 500 and has, by far, the largest representation in this benchmark index. When the XLK underperforms, it's typically a drag on the S&P 500.
Defensive Sectors - XLV, XLP, XLRE, XLU:
Defensive sectors are UNDERPERFORMING during a month of selling. That's weird and DOES NOT confirm that there's a ton of weakness ahead. Why would Wall Street be abandoning safer stocks ahead of a further market selloff? That makes no sense to me.
Bottom line: Treat this as a temporary decline and build up positions in your favorite beaten-down stocks, while maintaining a healthy position in consumer discretionary stocks. I also expect to see higher treasury yields ahead, favoring areas like financials and transportation stocks on a relative basis.
ChartLists/Strategies
The Volatility Index ($VIX), after surging 24% on Tuesday, is now at 22.45 (down 3% today). Any time the VIX is in the 20s and rising, I tend to grow very defensive - even if I believe the market weakness is only temporary. First, I could be wrong and a rising fear level can lead to very quick and intense selling. I have no problems building long positions into market weakness, but it should be part of a plan to accumulate as certain price support levels are reached, KNOWING that we might see more selling near-term.
As most of you know by now, I'm no fan of the media, as I believe their best interest is making money at the public's expense, not educating the public or providing unbiased, objective news. Today, on CNBC.com, the day after one of the worst market days of the year, CNBC used an extremely bearish call by Jeremy Grantham, a strategist known for his strikingly bearish calls. CNBC used this ridiculous call to enhance their revenue stream (see the bottom of the image), knowing their audience is likely very fearful from the September swoon and Tuesday's big selloff. This is a perfect example of how the media uses fear to coerce the public into paying them money. If you disagree with me, that's fine. We can agree to disagree. I think it's disgusting. Their "PRO" information is no better than their other free information. Ok, today's rant is over.
I would love to debate Mr. Grantham on this one. Some analysts/strategists love shock value. He and Peter Schiff are two that quickly come to mind. They scream "Market Armageddon" all the time, then point to the two times in the past 40 years that they've been right. Ok, now the rant is truly over.
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.
Wednesday, September 29:
CTAS, JBL, WOR, MLHR, NG
Thursday, September 30:
PAYX, KMX, MKC, JEF, BBBY
Economic Reports
August pending home sales: +8.1% (actual) vs. +0.9% (estimate)
Happy trading!
Tom