EB Daily Market Report - Friday, June 17, 2022
Bond/Stock Market Closed Monday
In observance of a new Federal holiday, Juneteenth National Independence Day, both the U.S. bond market and stock market will be closed on Monday, June 20th.
Portfolio Re-Draft
Given my belief that a market bottom is in AND the fact that money is rotating into more aggressive areas, I plan to spend all day Monday redesigning our 5 Stock Portfolios and our Model ETF Portfolio. I discussed this possibility at the time of the stock and ETF drafts. For those of you that are currently holding or trading the portfolios, the decision to follow the new, more aggressive, growth-oriented portfolios is completely up to you. I just believe that the risk of owning these stocks can be justified given recent market behavior and the extreme fear that engulfs the market right now. We will enter these new stocks at Tuesday's opening price for our tracking purposes and we will exit the former at the Tuesday open as well.
Many of the current portfolio stocks remain leaders (or are more growth-oriented) and are likely to remain in the "re-drafted" portfolios. That might be a reason to hold off any adjustment to your portfolios until Tuesday. I plan to send out a Special Portfolio Re-Draft report on Monday evening so that you'll have the information and the new portfolio composition prior to the opening bell on Tuesday.
Executive Market Summary
- Futures were higher overnight, especially on the NASDAQ, but weakened considerably in the final hour of pre-market trading
- We did see bifurcated action at the opening bell with the Dow Jones and S&P 500 opening lower, while the NASDAQ gapped higher
- The 10-year treasury yield ($TNX) tumbled 8 basis points today to 3.23% and it's now down a full quarter point since its high before the Fed announcement
- Crude oil ($WTIC,-7.25%) is down more than 8 bucks to $109 per barrel
- Communication services (XLC, +2.07%), technology (XLK, +1.63%), and consumer discretionary (XLY, +1.62%) are leading today's advance as money rotates further into aggressive areas
- Today is June monthly options expiration day, which could also be contributing to strength in these 3 sectors
- Energy (XLE, -4.35%) is the primary laggard - likely due to the falling crude oil prices
- Renewable energy ($DWCREE, +8.49%) is surging today with Enphase Energy (ENPH, +9.53%) sitting atop the S&P 500 leaderboard
Market Outlook
Are transports ($TRAN) giving us the all-clear signal too? Absolute price action wouldn't suggest it, but like many indices, the TRAN is printing lower lows with a much more bullish feel based on its rising AD line. Check this out:
We can take it one step further as transports vs. utilities ($TRAN:$UTIL) is yet another intermarket relationship that helps us to better understand likely stock market direction. As the S&P 500 drops, we're seeing tremendous rotation away from the defensive utilities and into the more aggressive, economically-sensitive transports. Take a look at this positive divergence on the ratio and the negative divergence that accompanied the top:
I use this ratio as more of a secondary ratio, but it is confirming the more bullish action that I've been pointing out on other sustainability ratios.
Sector/Industry Focus
I believe it's time to begin looking for the improving industry groups in the growth areas. While I wouldn't call financials the most growth-oriented sector, there are components of growth within. I view the specialized consumer services industry ($DJUSCS) as one such area. The outlook for just about any consumer-oriented industry improves as the economic outlook improves. If Wall Street is moving back into growth, I'd look for the DJUSCS to do well. It's certainly showing signs of improvement:
A quick glance might not see improvement as the overall down channel remains in play without question. But that May relative strength line hit an 8-month high in May and the group appears to be trending higher on a relative basis. I'd look for a relative strength break above the 0.45% as confirmation of this improvement.
ChartLists/Strategies
It's been a crazy, volatile week, but many of the max pain candidates are looking really good. But several don't just look good into options expiration. I see the potential of major bottoms in place. Let's look at two:
ETSY:
ETSY has been an awful performer for quite some time, but I love the positive divergence to mark a bottom here. Also, in that bottom panel, you can see that specialized consumer services ($DJUSCS) is seeing plenty of rotation into the group. ETSY's relative strength isn't great, but I do like that as it printed the recent absolute low, it held its relative low. That could be a very subtle signal of ETSY reversing course here.
ZM:
I have been really impressed with ZM's trading behavior - even before its earnings announcement. But since that announcement, I see little weakness in this chart. If I'm correct about growth regaining its footing and a bottom in place, I fully expect ZM to be a leader.
(Full Disclosure: I own both ETSY and ZM. Please understand both of these stocks are quite aggressive and would likely perform quite poorly if the stock market selloff extends further into 2022)
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.
Friday, June 17:
None
Tuesday, June 21:
LEN, LZB
Economic Reports
May industrial production: +0.2% (actual) vs. +0.4% (estimate)
May capacity utilization: 79.0% (actual) vs. 79.2% (estimate)
June leading indicators: -0.4% (actual) vs. -0.4% (estimate)
Happy trading!
Tom