EB Daily Market Report - Wednesday, January 26, 2022

Tom Bowley - January 26, 2022

Executive Market Summary

Futures were very strong overnight as the bulls look to retaliate near-term for the vicious selling of late
Microsoft (MSFT, +4.94%) is lifting the beleaguered software group ($DJUSSW, +3.62%), posting quarterly results above expectations
Technology (XLK, +2.92%) and consumer discretionary (XLY, +1.73%) are rebounding today after leading our major indices lower the past 1-2 months
All 11 sectors are higher, but consumer staples (XLP, +0.08%) is the primary laggard
Cryptocurrencies are also rebounding, with etherium ($ETHUSD, +6.75%) leading the charge
Gold ($GOLD, -1.23%) is down ahead of today's Fed policy statement
Crude oil prices ($WTIC, +2.49%) are jumping back above $87 per barrel, lifting energy (XLE, +1.04%)
While the Federal Reserve is not expected to hike interest rates today, most market participants will be anxious to hear the latest statement, looking for new hawkish or dovish wording
Tesla (TSLA, +3.85%) will be reporting its latest quarterly results after the bell today; thus far, TSLA has been holding key price support near 900

Market Outlook

I'm going to draw a couple pictures (charts) today to give you an idea of the wide, short-term trading range that we can expect with a breakdown underway, but with very high volatility readings. First, let's simply start with the S&P 500 and the potential head & shoulders pattern that we'll need to monitor carefully:

We're bouncing nicely today, but is this simply a trap? Is it a right shoulder printing before our very eyes? The 4500 price resistance, along with the 20-day EMA, currently near 4570, are the two key areas where I'd be looking for a reversal.

If you're interested in what the Fibonacci retracement levels look like, well look no further:

Again, we're looking in a similar area. Today's high nearly reached the initial 38.2% retracement level at 4450. 4520 and 4590 would represent the next two levels. Given the price resistance at 4500 and the 20-day EMA at 4570, that provides us four different possible resistance levels from 4500-4590. I'm expecting another reversal to the downside to kick in somewhere in that range - if not before. So we have another 1-3% of upside perhaps?

Should the S&P 500 continue rallying and close back above 4600, the argument would change to more of a sideways consolidating market, rather than a downtrending one. Let's take it one step at a time here.

Sector/Industry Focus

Software ($DJUSSW, +3.62%) is trying to rally on the heels of the MSFT quarterly earnings report. Using Fibonacci once again, here's what we can potentially look for if the DJUSSW continues to rally:

Because software has been very weak on a relative basis, I'd only expect a 38.2% or 50.0% Fibonacci retracement. So if the market stays bullish for the next few days, the DJUSSW could top out somewhere in the 5225-5375 range. We're currently trading at 5122. So anywhere from another 2-5% rally would be best case scenario IF we're truly in a downtrending market.

ChartLists/Strategies

Gold (GLD) is down ahead of the Fed announcement. I don't want to paint the GLD as a "safe" investment. Many times, it can move significantly after a Fed announcement. Below is a chart that highlights the day of a Fed announcement (black-dotted vertical line) so that you can see subsequent moves in gold, which can be quite volatile:

I like GLD as long as it's trading and closing above its 20-day EMA. Momentum currently is strong and the AD line suggests that I'm not the only one buying. However, if GLD is weak after today's Fed meeting, I have no problems taking a small loss and exiting into today's close. The 20-day EMA will be my line in the sand. I'm not married to any positions. I can always get back in later if I choose.

I just wanted to be sure to point this out as the GLD can be extremely volatile after a Fed meeting. It's certainly not for everyone.

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, January 26:

TSLA, ABT, INTC, T, BA, ANTM, NOW, ADP, LRCX, CCI, EW, NSC, FCX, VRTX, GD, TEL, KMB, XLNX, APH, AMP, LVS, CHT, GLW, NDAQ, HES, TER, DRE, URI, STX, RJF, ROL, XM, MKTX, PTC, PKG, WHR, WOLF, AZPN, KNX, MKSI, LEVI, CACI, SLM, HXL, MTH, SIMO, CALX, LC

Thursday, January 27:

AAPL, V, MA, CMCSA, DHR, MCD, SAP, SYK, MDLZ, MO, MMC, BX, SHW, HCA, TEAM, CP, NOC, KLAC, DOW, MSCI, STM, XEL, TROW, ROK, RMD, VLO, AJG, BLL, NUE, CAJ, LUV, MKC, RCI, DOV, TSCO, TDY, IP, CE, WDC, EMN, TXT, WRB, RHI, AOS, EWBC, WAL, FICO, JNPR, CFR, OLN, ALK, EXP, NATI, X, MUR, JBLU, MTSI, KEX, ADS, BOOT, EXTR, FLWS

Economic Reports

December new home sales: 811,000 (actual) vs. 760,000 (estimate)

FOMC policy statement at 2:00pm ET

Happy trading!

Tom