EB Daily Market Report - Tuesday, May 24, 2022

Tom Bowley - May 24, 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 lower overnight and we gapped lower across our major indices
After a flailing attempt to rebound, indices are turning lower again this afternoon
The April new homes report came in WAY below expectations, just as I expected and discussed in this morning's Trading Places LIVE show
Housing reports have been brutal in recent weeks, but prices in that industry have been coming down all year in anticipation of the fundamentally poor reports
Communication services (XLC, -4.33%) set a new 52-week low today as internet stocks ($DJUSNS, -6.55%) are also hitting a fresh 52-week low
Snap, Inc. (SNAP, -43.34%) is a reminder that devastated growth stocks CAN and often times DO go lower in poor market environments; SNAP is weighing on many growth stocks, especially internet stocks
The 10-year treasury yield ($TNX) is down 10 basis points to 2.76%, nearing the lower end of its current yield range from 2.65% to 3.16%
Most commodities are fractionally higher on the session
NVIDIA Corp (NVDA, -4.95%), a big name in semiconductors, is set to report its quarterly results after the bell

Market Outlook

Remember when internet stocks ($DJUSNS) were primary leaders in the raging secular bull market? Yeah, me too. Well, times have changed and they'll change again. But for now, outside of a possible oversold bounce, the group remains an AVOID. They're showing no signs of an extended rally as they continue to flounder vs. the benchmark S&P 500:

The bottom panel shows internet moving to fresh relative lows vs. the S&P 500, so money continues to rotate OUT of this group. Growth stocks have been under significant pressure for many months now and internet has been a prime target of sellers. I really believe this is going to set up as a tremendous opportunity later in 2022, but we can't force the issue too soon. We need to see signs of rotation and renewed bullish action. Catching the bottom would be great, but that's not necessary. I'm fine buying higher once the bottom is in and an uptrend is established. But buying ahead of the bottom could be extremely painful - even from these depressed price levels.

Sector/Industry Focus

A picture is worth a thousand words:

Are we really supposed to buy into yesterday's rally and today's attempted recovery off the gap lower? The above sector rotation says NO WAY! Consumer staples (XLP) rallying while discretionary (XLY) stocks sell off again. This is exactly the OPPOSITE of what we want to see. We MUST remain cautious and patient.

ChartLists/Strategies

After the close today, we'll get several quarterly earnings reports. But I want to focus on the current charts of three of them:

NVDA:

SNOW:

SPLK:

All three of these are growth companies that are LAGGARDS among their industry groups, which are also LAGGARDS vs. the S&P 500. Weak stocks in weak industry groups. I cannot imagine the news among these three will be very good, but we'll find out this afternoon.

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.

Tuesday, May 24:

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

Wednesday, May 25:

NVDA, BNS, BMO, SNOW, SPLK, ZTO, LU, WSM, DXC, DKS, NTNX, BOX, VSAT, ZUO, GES, ELF

Economic Reports

May PMI composite: 53.8 (actual) vs. 55.5 (estimate)

April new home sales: 591,000 (actual) vs. 750,000 (estimate)

Happy trading!

Tom