EB Daily Market Report - Tuesday, March 22, 2022

Tom Bowley - March 22, 2022

ChartLists Updated

I have updated both the Strong Earnings ChartList (SECL) and the Strong Future Earnings ChartLists (SFECL). There weren't many changes as there haven't been a lot of earnings reported in the past week to ten days. Still, both have been updated and can be downloaded from our website later this afternoon.

Executive Market Summary

Futures were slightly higher overnight and our key indices opened in positive territory
Strength has continued in most aggressive areas as communication services (XLC, +1.99%) and consumer discretionary (XLY, +1.78%) lead all sectors
Only the energy (XLE, -0.57%) and health care (XLV, - 0.06%) sectors are lower today
Commodities are mostly lower today, though crude oil ($WTIC) is flat just under $112 per barrel
Cryptocurrencies are surging higher today, with both bitcoin ($BTCUSD) and etherium ($ETHUSD) up more than 3%
Internet stocks ($DJUSNS, +2.71%) are being led higher by Bilibili (BILI, +23.14%); Alphabet (GOOGL, +2.56%) is breaking above key short-term price resistance
Nike (NKE, +3.35%) trails only Boeing (BA, +5.93%) among Dow Jones component stocks after reporting better-than-expected revenues and EPS
Tesla (TSLA, +5.86%) is having another strong day and is the top stock in the S&P 500 today

Market Outlook

No one can argue with the short-term strength in the stock market right now. Yes, last week may have been manufactured to a large degree because of options expiration, but we're beginning to see breakouts that we need to be respectful of. This rally continues to be supported by more aggressive areas. Until that changes, the short-term direction is higher. Also, the bulls continue to push prices higher into the close each day, symbolic of a strong uptrend. Are there concerns? Absolutely. While our sustainability ratios are working in the very near-term, we are seeing our major indices break to one-month highs without confirmation from these ratios. Check this out:

So while there's very good news in that this rally keeps pushing higher, there's also the reality that over the more intermediate-term, there's still not a ton of conviction behind this rally. It's at least something to keep in mind. But this uptrend remains in play until it isn't. Watch for a weak finish one day to perhaps spark the beginning of another downtrend.

Sector/Industry Focus

High Volatility Index ($VIX) readings marked the recent market bottoms, but drops in the VIX have also coincided with short-term market tops, as you can see below:

The green arrows are bullish as they suggest the market has grown too fearful near-term. However, the red arrows show that the fear has dissipated as VIX readings near 20 have shown an element of complacency in this current market environment.

ChartLists/Strategies

I updated the Strong Earnings ChartList (SECL) earlier today, so I thought I'd run a 20-day EMA test to see which stocks on this ChartList have been pulling back (not likely stocks in consumer discretionary or technology). Here were two I found interesting, where long positions could be taken with tight stops in play:

HRL:

HRL needs to clear short-term gap resistance near 51 to resume its prior uptrend, but it's a stock that has shown much improvement of late. It's also a stock that should hold up well if the market's 2022 slide were to resume. The other side, of course, is that if more aggressive stocks keep leading the current rally higher, HRL is the type of stock that will lag. So it's more appropriate for traders looking to mitigate risk to some degree.

KHC:

This is another defensive play, but one in which there's very little downside. I'd be likely to move to the sideline with any close beneath both the 50-day SMA and price support near 37. That heavy volume in February to accompany the big surge higher reeks of accumulation.

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, March 22:

ADBE, CCL, HQY, WOR

Wednesday, March 23:

CTAS, GIS, TCOM, BZ, HTHT, FUL, KBH, OLLI, JKS, WGO

Economic Reports

None

Happy trading!

Tom