EB Daily Market Report - Wednesday, October 20, 2021
Executive Market Summary
- Futures were higher overnight, but the buyers are definitely skewing their interest towards value today as yields remain in a near-term uptrend
- The 10-year treasury yield ($TNX) is up 1 basis point to 1.64%
- Strength today is very defensive-oriented as utilities (XLU, +1.78%) and real estate (XLRE, +1.38%) lead the action
- Technology (XLK, -0.62%) is under pressure and is the worst performing sector
- Netflix (NFLX, -2.50%) reported better-than-expected earnings, but it's selling off after a pre-earnings advance
- PayPal (PYPL, -5.68%) is the 2nd worst performer on the S&P 500 after reports surfaced that it's looking to buy Pinterest (PINS, +11.14%)
- Renewable energy ($DWCREE, -4.60%), a leader in recent sessions, is seeing profit taking today
- Tesla (TSLA) reports its latest quarterly results after the closing bell today
Market Outlook
We're seeing relative strength in small caps ($SML) today. I thought I'd share a chart with you that supports the notion that we're in the seasonal sweet spot for small caps. Check out this seasonality chart for the past 20 years:
At the bottom of those gray monthly bars, you'll see a number. That's the average outperformance each month of small caps over the benchmark S&P 500. If you combine November, December, and January, it adds up to 1.9% average small cap outperformance over the next 3 months. That's the best 3-consecutive month period of the year. To account for this small cap historical strength, we added CALF, a small cap ETF as one of our Model ETF Portfolio core holdings during our "Model ETF Portfolio Draft" yesterday afternoon.
Sector/Industry Focus
Durable household products ($DJUSHD) has been an awful part of consumer discretionary, as it's been downtrending for months with little current hope of recovery:
The PPO has been exclusively below its centerline, suggesting that sellers have been in control, since June. The AD line topped in early May and has been downtrending ever since, especially over the past 2-3 months. The downtrend channel is rather obvious as well. Personally, I completely avoid groups like this because Wall Street wants no part of it. We need to see something change on this chart, preferably a break of the down channel to get things started more positively.
ChartLists/Strategies
I ran our Downtrend Reversal scan against the updated Strong Earnings ChartList (SECL) and 3 stocks were returned: KR, MNST, and CLDX. Of these, KR and MNST looked interesting to me technically:
KR:
The positive divergence could lead to a break above KR's downtrending 20-day EMA (finally!). It's in one of the few defensive groups that's been outperforming the S&P 500. I don't know that I'd view this as a major bottom, but I do believe KR has a solid chance to move higher to test its 50-day SMA in coming days/weeks.
MNST:
MNST has had a very rough September and October, but the current price level is where I'd expect at least a short-term turn back to the upside. Initially, gap resistance (red arrow) and the declining 20-day EMA could be problematic, but I would look for a further short-term rally. The longer-term picture is cloudy because of the relative weakness here, but a short-term trade with a tight stop below 84.50 makes sense.
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, October 20:
TSLA, ASML, VZ, ABT, NEE, IBM, ANTM, LRCX, CSX, CCI, CP, BIIB, KMI, DFS, PPG, NDAQ, EFX, LVS, BKR, NTRS, XM, CFG, MTB, MKTX, GGG, CMA, BMO, LAD, KNX, OMF, THC, SLG, WGO
Thursday, October 21:
INTC, DHR, T, SAP, UNP, SNAP, BX, MMC, ABB, FCX, CMG, IQV, DOW, SIVB, VLO, NUE, LUV, RCI, TSCO, KEY, ALLY, POOL, CE, GPC, DGX, IPG, WRB, WHR, AAL, RHI, WAL, ALLE, SNA, EWBC, CSL, CROX, AN, OLN, ALK, MAT, GTLS, OZK, TPH, SCHN
Economic Reports
Beige book released at 2:00pm ET
Happy trading!
Tom