EB Daily Market Report - Thursday, March 3, 2022

Executive Market Summary

• Futures were rather flat overnight, but then began rising just before the opening bell
• After very early strength, the sellers came back to drive prices into negative territory; there's still a LONG way to go to today's close so we'll see if sellers remain in control
• Key channel resistance has been tested, so failure here could result in another leg lower in the market; however, return to strength this afternoon would likely bode well for U.S. equities near-term
• Crude oil ($WTIC, -0.50%) is volatile, but lower to $110 per barrel this morning after trading significantly higher overnight
• The 10-year treasury yield ($TNX), which has been incredibly volatile as well, is flat today at 1.86%
• Sectors are mixed with 6 higher and 5 lower
• Our three aggressive sectors - consumer discretionary (XLY, -1.52%), technology (XLK, -1.01%), and communication services (XLC, -0.73%) - are the hardest hit, not a good look
• Meanwhile, utilities (XLU, +1.09%) and consumer staples (XLP, +0.70%) lead
• Snowflake (SNOW, -17.60%) and Veeva Systems (VEEV, -17.01%) are both being crushed after earnings; software ($DJUSSW, -1.80%) is potentially reversing at 20-day EMA resistance - something to watch

Market Outlook

I believe that the Federal Reserve and Jay Powell will have a lot to do with whether this short-term correction morphs into the larger cyclical bear market that I've called for. The Russia-Ukraine conflict has lowered economic expectations, even signaling a possible recession. That has sent treasury yields tumbling lower, which spared many large cap growth stocks from further declines, actually providing tailwinds in the very near-term. But now we're seeing yields rising again. Will that rise be the factor that sends growth stocks (and the overall market) to new lows? I'm not quite sure.

But I do know one thing. Fed Chair Powell has quite the dilemma. The Russia-Ukraine conflict is sending oil prices surging higher. So does the Fed raise rates multiple times to combat inflation? Or do they stand their ground, waiting to see what kind of economic impact higher crude oil prices and this conflict have? It's a very interesting discussion, but I can tell you that the stock market generally doesn't like it when either inflation (CPI) is reported or when the Fed meets. Here's a 6-month hourly chart of the NASDAQ 100 ($NDX) with vertical dotted lines marking dates of key CPI reports and Fed meeting announcements:

The key dates for reports/announcements in March are as follows:

• February CPI report date: Thursday, March 10th, 8:30am ET
• Federal Reserve meeting: Tuesday-Wednesday, March 15-16, policy statement at 2:00pm ET on March 16th

We'll see what impact these two dates and reports/announcements have on stock market performance. I can't predict what kind of reaction we'll see, but I do believe they will be VERY important dates in terms of getting fresh data with which to make market decisions, including what happens to our "sustainability" ratios between now and then.

Sector/Industry Focus

Let's keep the focus on the NASDAQ 100's ($NDX) hourly chart. We just saw a slight negative divergence form today on the rally past the February 28th high. Combine that with the channel test above and I believe this is a great opportunity to short, if that's your preference. It's most definitely not a guarantee to profits. Rather, it's simply a solid reward-to-risk short entry point where you can exit quickly if we see a rally later today. Here's that divergence:

It was our first hourly negative divergence of 2022, primarily because we haven't had strength long enough to establish a higher high with a lower PPO. Keep in mind that we COULD break out and eliminate that negative divergence, so stops must be in place. But I like the reward to risk of a potential top here. We'll see.

ChartLists/Strategies

I want to get this DMR out quickly this morning, so I'm going to pass on individual stock setups. However, my strategy would be to look for stocks in downtrends and down channels that have moved higher to test prior price breakdowns and/or 20-day EMA test. Then I'd keep a tight closing stop just above those critical levels. If you're wrong on the short side, you don't want to be "wrong for long".

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.

Thursday, March 3:

AVGO, COST, TD, CNQ, MRVL, KR, BF/B, BBY, GRAB, COO, BURL, ARGX, BILI, TTC, BJ, ESTC, WB, GPS, UTZ, AVAV, MEI, GOGO, MTLS, BIG, TGLS

Friday, March 4:

None

Economic Reports

Initial jobless claims: 215,000 (actual) vs. 233,000 (estimate)

Q4 productivity: 6.6% (actual) vs. 6.7% (estimate)

PMI composite: (actual) vs. 56.0 (estimate)

January factory orders: (actual) vs. +0.5% (estimate)

February ISM services: (actual) vs. 60.9 (estimate)

Happy trading!

Tom