EB Daily Market Report - Tuesday, November 23, 2021
Fall Special
Just a quick reminder that our Fall Special runs through Saturday, November 27th, at midnight. If you'd like to see the details and savings, CLICK HERE.
Holiday Schedule
We'll be closed this Thursday for the Thanksgiving Day holiday. We will be available on Black Friday, though there will not be a Daily Market Report on Friday. The U.S. stock market will be closed on Thursday and it'll have an abbreviated session on Friday, closing at 1:00pm ET.
Executive Market Summary
- Futures were mostly lower overnight, though most weakness was centered around the NASDAQ
- A second consecutive day of selling in treasuries has sent the 10-year treasury yield ($TNX) 3 basis points higher to 1.66%
- Crude oil prices ($WTIC, +1.92%) are moving higher again, prompting Wall Street to rotate back into energy (XLE, +3.20%), easily today's top performing sector
- The higher treasury yields are aiding financials (XLF, +1.19%) which, along with real estate (XLRE, +1.10%), are the other two sectors gaining more than 1% on the session
- The clear losers today are the growth-oriented areas like consumer discretionary (XLY, -0.99%) and technology (XLK, -0.90%)
- Automobiles ($DJUSAU, -2.89%) are a drag on discretionary stocks as Tesla (TSLA, -3.24%) and Ford (F, -1.51%) see profit taking
- Software ($DJUSSW, -1.89%) is also weak as many of these growth-oriented stocks suffer from today's rotation away from these types of stocks
- Zoom Video Communications (ZM, -17.33%) is taking another big hit, despite beating Wall Street EPS estimates; analysts are lowering price targets, citing slowing growth ahead
Market Outlook
I believe the stock market is currently reacting to the issues I discussed last week. The 10-year treasury yield ($TNX) is on the rise, but as I mentioned last week, the stock market is not currently in a great position to handle negative news. That's what the rising Volatility Index ($VIX) was telling us last week. Here's a reprint of that 2021 year-to-date chart:
The last time we saw the VIX rising WITH the S&P 500 in May, it resulted in a period of selling shortly thereafter. The uptrend resumed as we should consider these warnings very short-term in nature. But this VIX warning combined with negative divergences should be taken seriously by short-term traders. The rise in the yield is the excuse that you'll see used by media outlets, but the fact is that the charts were already providing us a reason to be cautious a week ago. Growth stocks exploded recently and are due for a pull back. How we finish today will be important as the S&P 500 still remains above its 20-day EMA. Failure to hold that moving average could spell more trouble short-term. We need to watch the absolute level of the VIX as well. Check out this chart:
The VIX is rising and that suggests that we could see selling accelerate quickly. The red arrows show us that a VIX move into the upper-20s is possible and, if it occurs, we'll almost certainly see a selloff down to price support. Therefore, 4525-4550 is a real possibility short-term. The problem with going all cash is that we don't always see selling play out like that and if you move to cash and the S&P 500 turns higher to another all-time high, what do you do? I believe it makes sense to lessen positions as a trader, or possibly even buy put insurance for a more significant fall, but I remain very bullish longer-term and I fully expect that we'll be back at new all-time highs later this month or in December. It also comes down to how much risk you're willing to take. Some may simply ride this short-term issue out, while others would be more comfortable with less money at risk. I can't tell you for certainty which way the stock market is going near-term. I can only tell you the risks remain elevated.
Sector/Industry Focus
Software ($DJUSSW), in my opinion, is particularly vulnerable in the short-term. The combination of a negative divergence and lingering options expiration issues could stifle this group near-term. Here's the chart:
I expect that any further selling will create trading opportunities on the long side. Should the overall market weaken and/or the TNX rise, then the DJUSSW could be a primary victim. I see initial key support in the 5750-5850 area. Losing that area would likely trigger further short-term selling. But if you're looking to move into some of your favorite software stocks during weakness, that would be a level where I'd consider doing so.
ChartLists/Strategies
Because of the clouds that are hanging over the market, I'd be careful overtrading, especially growth stocks. Instead, consider more defensive-oriented names. Here are two that might make sense:
COTY:
EL:
Both stocks come from our Strong Earnings ChartList (SECL), are in the personal products area ($DJUSCM), and could present short-term opportunities without carrying as much risk as growth-oriented stocks right now. They also are unlikely to produce huge gains. But the stock market is in a different mood right now, so we need to recognize that and trade a bit more conservatively near-term. COTY is back near key gap support and its rising 20-day EMA. EL has been a solid performer and would represent greater value if it were to drop back closer to its rising 20-day EMA.
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.
Tuesday, November 23:
MDT, ADSK, ADI, VMW, DELL, XPEV, HPQ, BBY, DLTR, J, BURL, SJM, DKS, GPS, PLAN, PSTG, NTNX, ESLT, JWN, AEO, CBRL, GENI, ANF, DY, JACK, ROAD, GES
Wednesday, November 24:
DE, KC
Economic Reports
November PMI composite: 56.5 (actual) vs. 57.8 (estimate)
Happy trading!
Tom