EB Daily Market Report - Wednesday, May 25, 2022
Mark Your Calendar
I'll be hosting a VERY important "Historical Trends" webinar tomorrow, 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 a big warning from Dicks Sporting Goods (DKS, +9.38%) this morning resulted in a gap lower across our major indices
- DKS, the retail industry ETF (XRT, +5.81%), and the overall market, however, have bounced back and are all higher
- Consumer discretionary (XLY, +2.30%) has benefited from a strong retail group; also, automobiles ($DJUSAU, +4.57%) is rebounding from its recent pummeling
- Energy (XLE, +1.14%) is also strong with crude oil prices ($WTIC, +0.29%) fractionally higher
- Transportation stocks ($TRAN, +0.88%) are strong as well, with trucking ($DJUSTK, +2.12%) and airlines ($DJUSAR, +1.14%) leading the way
- The Fed minutes were just released, pointing to more 50-basis-point rate hikes ahead; the initial response was a quick pop to the upside, but followed by more intense selling
- Intuit (INTU, +8.94%) is today's top performing S&P 500 stock after posting better-than-expected quarterly results
Market Outlook
When we mark key tops, you'll see good news ignored frequently. Many times, the opposite is true at bottoms - bad news is ignored. I'm not interested in calling a major bottom because of a few hours of trading, but it is definitely noteworthy that retailers are seeing a surge on heavy volume after Dicks Sporting Goods (DKS) lowered its 2022 forecast. This group has been beaten up badly since November 2021, but high volume days like today can begin to do a lot of repair to AD lines, especially if we finish on or near the high of the day. There's a chance that the XRT prints its highest volume day in the past year, so today's finish will be important:
Looking at a 5-day 10-minute chart of DKS is perhaps even more eye-opening:
This kind of market reaction would have placed DKS in the top 5 of our Earnings AD ChartList, if it finished today where it is now. Wall Street cannot accumulate a stock without big volume. Today's share volume on DKS is very likely to be the highest it's seen this century. It already has traded the most dollar volume in its history and we still have 2-3 hours left in the trading day. I don't ignore days like this. It tells me that retail may have reached its selling capacity.
I'll be watching the XRT and many retailers in coming days and weeks to see if their AD lines continue to strengthen, even if their prices don't. That'll be a possible bullish clue as we attempt to catch a market bottom.
One more unrelated sentiment point I'd like to make. Over a two-year period ending April 22nd, the equity-only put call ratio ($CPCE) closed above .75 on two occasions. Just two days in two years! In the past month alone, we've seen the CPCE move above .75 on 9 occasions! This is all part of the "resetting" of sentiment that I discussed at the end of 2021. Can you feel the fear building? Everywhere you turn and everyone you talk to is bearish. I have many friends telling me that the stock market has NO chance of going higher from here. Unfortunately, that's the "resetting" of sentiment that was necessary at the beginning of the year.
We're getting closer and closer to a market bottom, I'm convinced of that. Despite that, we will still need to exercise a LOT of patience as a potential bottom forms.
Sector/Industry Focus
Can NVIDIA Corp (NVDA) do for the semiconductors ($DJUSSC) what DKS did for specialty retailers ($DJUSRS)? Can we just get all the bad news out of the way and see a relief rally? Well, we'll find out later today as NVDA reports its quarterly results after the bell today. Here's the current outlook for the DJUSSC:
I am beginning to see a few early signs of relative strength here. The blue arrows mark the absolute and relative highs leading to the December top. Note that the last absolute high in the DJUSSC was accompanied by rapidly-deteriorating relative strength. As I mark all the absolute and relative price lows with red arrows, I realize that relative strength is improving. Is this a bottoming sign? Well, it could be. It's certainly improving. Maybe the NVDA earnings and market reaction will provide us further clues.
Historically, the stock market tends to perform very well during the last week of May and the first week of June, so a bounce is a definite possibility here. If we do bounce, the next selloff could absolutely provide us major clues as to whether we're in a bottoming process.
ChartLists/Strategies
From our Bullish Trifecta ChartList (BTCL), I found the following stocks interesting from a technical perspective:
BBW:
BBW is a relative leader in the specialty retailers group. If retail continues to feel the love short-term, BBW could be a big beneficiary in the space.
HOLX:
Is HOLX uptrending off its earnings report released in April? If so, then today's drop to test the rising 20-day EMA would be a great entry point. Let's see if it holds into the close.
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.
Wednesday, May 25:
NVDA, BNS, BMO, SNOW, SPLK, ZTO, LU, WSM, DXC, DKS, NTNX, BOX, VSAT, ZUO, GES, ELF
Thursday, May 26:
BABA, COST, RY MDT, TD, VMW, CM, MRVL, DG, BIDU, WDAY, DELL, DLTR, ZS, ULTA, BURL, M, GPS, IQ, FTCH, LGF, GLNG, AEO, JACK, BKE, DOMO
Economic Reports
April durable goods: +0.4% (actual) vs. +0.5% (estimate)
April durable goods ex-transports: +0.3% (actual) vs. +0.6% (estimate)
FOMC minutes to be released at 2pm ET
Happy trading!
Tom