EB Daily Market Report - Monday, May 23, 2022

Tom Bowley - May 23, 2022

Mark Your Calendar

I'll be hosting a VERY important "Historical Trends" webinar this Thursday, May 26th, at 4:30pm ET. If you EVER trade stocks, you'll want to be aware of the historical trends that I plan to discuss on Thursday. If you can't attend live, be sure to check out the recording. I promise it'll improve your trading success.

Executive Market Summary

Futures were higher across the board, though strength appears to be concentrated in Dow Jones stocks
Bitcoin ($BTCUSD, -2.23%) is churning just beneath the 30,000 level, likely a signal of lower prices ahead
Commodities are mostly higher, especially natural gas ($NATGAS, +7.94%), which is approaching $9; it hasn't closed above that level since 2008
The 10-year treasury yield ($TNX) is up 8 basis points to 2.87%, despite no significant economic reports out today
Financials (XLF, +3.49%) are leading the charge as banks ($DJUSBK, +5.33%) surge and try to close above their 20-day EMA for only the second time since March
Energy (XLE, +2.69%) is having another solid day as well
Despite the big rebound today, consumer staples (XLP, +2.08%) are easily outperforming their more aggressive discretionary (XLY, +0.43%) peers
JP Morgan (JPM, +6.95%), American Express (AXP, +3.79%), and Visa (V, +3.63%) - 3 financials - are providing the Dow Jones a big lift

Market Outlook

The sustainability ratios that I follow are all down today with one exception: transports ($TRAN) are outperforming utilities ($UTIL). Once again, Wall Street is announcing to anyone willing to listen that it, collectively, isn't interested in buying aggressive areas of the market. This doesn't mean we won't see a continuing rally short-term. However, it does tell me that we shouldn't trust this move to be THE move that changes the market environment.

The initial question is whether we'll see enough strength in this rally to clear the current down channel:

If we can get through the 4000 level, then a trip into the price resistance zone from 4070 to 4160 would likely be next.

Sector/Industry Focus

There still is little to hang our bullish hats on. The rebound comes with key sustainability ratios falling. Check this out:

We've still got plenty of work left in order to begin turning things around. A bottom is usually triggered by extreme panic, then followed by a bottoming process like more bullish rotation as the market tests prior lows. We'll likely need to remain patient at least over the next few weeks, if not months, as this process plays out.

ChartLists/Strategies

The Bullish Trifecta ChartList (BTCL) is an interesting ChartList that we update periodically. In order for a stock to be added to this ChartList, it must simultaneously be on our Strong Earnings ChartList (SECL), Raised Guidance ChartList (RGCL), and Strong AD ChartList (SADCL). So it has to have beaten Wall Street estimates as to both revenue and EPS in its latest quarterly earnings report, offered some sort of raised guidance - either revenues or EPS - and it must at least be giving the appearance of accumulation via a fairly strong AD line. I believe this is a solid ChartList to trade off of. There are two charts that look particularly interesting to me:

ANTM:

A strong finish could confirm a breakout above the recent down channel. Given that the longer-term trend is up, this would be a significant technical development. Also, note that the RSI has been holding above 40 throughout 2022, another indication of an uptrend still in play.

ULTA:

340 is a very significant support level for ULTA and it appears to be holding - at least for now. Entry at the current level with a closing stop beneath 340 would be a solid trade. As I've mentioned recently, the biggest concern is the overall market environment, not necessarily the setups.

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 several 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, May 23:

ZM, XPEV, HEI, AAP, NDSN, SKY

Tuesday, May 24:

INTU, NTES, AZO, A, BBY, RL, TOL, WOOF, ATHM, JWN, SBLK, QFIN, URBN, RAMP, CSIQ, ANF

Economic Reports

None

Happy trading!

Tom