EB Daily Market Report - Monday, April 4, 2022

ChartLists Updated

Over the weekend, a few more ChartLists were updated as follows:

• Raised Guidance ChartList (RGCL)
• Strong AD ChartList (SADCL)
• Short Squeeze ChartList (SSCL)
• Bullish Trifecta ChartList (BTCL)

You can view/download all of these ChartLists from our website.

Executive Market Summary

• Futures were bifurcated to open up this new trading week
• NASDAQ shares have outperformed throughout the day and growth stocks (IWF, +1.47%) have trounced value stocks (IWD, -0.39%)
• Tesla (TSLA, +5.55%) CEO Elon Musk disclosed a Twitter (TWTR, +29.32%) stake of more than 9%
• Cryptocurrencies are mostly lower today, led by bitcoin ($BTCUSD, +1.75%)
• Commodities are mixed with crude oil prices ($WTIC, +2.92%) and gold ($GOLD, +0.54%) higher, while silver ($SILVER, -0.22%) is slightly lower
• The 10-year treasury yield ($TNX) is up 3 basis points to 2.40%, yet banks ($DJUSBK, -0.34%) languish
• Communication services (XLC, +2.55%) is the primary driver of today's strength as internet stocks ($DJUSNS, +2.80%) enjoy one of their best days of 2022
• Consumer discretionary (XLY, +1.93%) and technology (XLK, +1.42%) are also strong
• The other 8 sectors are lower, led by utilities (XLU, -1.23%), one of only two sectors higher in 2022 - energy (XLE, -0.43%) is the other

Market Outlook

We can talk about all the "issues" in the market all we want. There are plenty of those to discuss. However, price action is what's truly important. Included in price action is the intermarket relationships. When I first discussed market weakness ahead, I suggested that a bottom might be found when we see a fresh new low or a price support test with money rotating heavily back towards growth stocks. That process might be underway now as growth stocks are showing much more strength on a relative basis:

Keep an eye on this chart, especially as we move closer and closer to the March CPI report, which will be released next Tuesday, April 12th, at 8:30am ET. I believe this will be the highest annual Core CPI rate that we'll see. Wall Street could be starting its rotation back into growth stocks right now. Note on this latest S&P 500 pullback, growth stocks are outperforming their value counterparts and all three asset classes - large, mid, and small caps - are threatening relative breakouts. It's just one sign, but it's an important one. The media can talk about higher interest rates, surging inflation, possible recession, etc. all they want, but if Wall Street begins moving into growth stocks, we'll want to do the same.

Sector/Industry Focus

To take the above discussion another step further, it's important to note that the higher-growth QQQ (ETF that tracks the NASDAQ 100) is significantly outperforming the more defensive SPY (ETF that tracks the S&P 500). Check out this current uptrend:

The relationship here is certainly taking on a much more bullish feel to it. The QQQ almost always outperforms the SPY during secular bull market advances. But many times we see bottoms form with a type of positive divergence. Prices move lower, but relative do not. While we might simply keep trading higher, another possible outcome is that the market moves lower one more time, but the above bullish rotation becomes a critical factor in calling a bottom on a retest.

So here's how I interpret all of this. These are unquestionably bullish signals. I don't believe it means we go straight higher, but it is representative of a bottom already being in. I wouldn't rule out a possible retest, however. And, of course, we need to keep checking these ratios, because they can change. The current behavior is very encouraging, though.

ChartLists/Strategies

The mixed market signals continue, but I thought I'd look at more defensive stocks that are pulling back on our Strong AD ChartList (SADCL) for potential trades. Growth stocks are showing tremendous leadership today, which is a great sign for the market, but these stocks present the most risk if we see more whipsaw action. So here are two defensive trades to consider:

THC:

THC has been a strong stock in the health care providers ($DJUSHP) area and its AD line has been strengthening. Getting an opportunity to buy THC on a 50-day SMA test would seem to represent a solid reward-to-risk trading opportunity. We'll see.

AGRO:

AGRO belongs to the food products group ($DJUSFP). While the group itself tends to be quite defensive and boring, AGRO has been anything but that of late, gaining more than 50% over the past month at its recent high. Today's pullback is providing a bit of overbought relief and the negative divergence suggests we could see a bit more short-term selling, but building a position here, especially on intraday weakness makes sense. AGRO's AD line has been superb over the past month. I doubt we see selling for very long before another return trip to the 12.50 level.

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.

Monday, April 4:

None

Tuesday, April 5:

AYI, NG, LNN, ARRY, SGH

Economic Reports

February factory orders: -0.5% (actual) vs. -0.6% (estimate)

Happy trading!

Tom