EB Daily Market Report - Thursday, July 7, 2022

Executive Market Summary

• Futures were strong overnight and our major indices gapped higher at the open
• This has been a bullish "trend" day, where prices move higher all day long - it's a definite sign of accumulation
• Energy (XLE, +4.07%) is today's big winner, but we'll see what happens when/if it reaches its now-declining 20-day EMA; I doubt any upcoming strength takes us past that moving average
• Consumer discretionary (XLY, +2.61%) having a very nice day and easily outdistancing its consumer counterpart - staples (XLP, +0.15%)
• All 11 sectors are higher as buyers abound with earnings season approaching
• Crude oil ($WTIC, +4.23%) is nearing $103 per barrel and lifting the energy sector today
• Copper ($COPPER, +4.08%) is having its best day in a month; it was above 4.50 30 days ago, but hit a low of 3.27 yesterday, before reversing - I'd expect a further bounce in copper
• ON Semiconductor (ON, +9.53%), one of our portfolio stocks, is leading the S&P 500 higher today

Market Outlook

Well, we've certainly got a nice rally underway and, given the approach to earnings season, it's not really a shocker at all to me. I believe the market has bottomed and it's doing what it does nearly every quarter - rising into the start of quarterly earnings season. Let's take a look at a daily chart of the recent leader, the NASDAQ, to see what we might expect in the coming days:

I'm already seeing very bullish signals on this chart in the form of improving relative strength in the QQQ vs. SPY (rotation to more growth-oriented QQQ). The positive divergence also suggests selling momentum slowed on the most recent price low. The two blue circles will be worth watching. I believe a close on the NASDAQ above 11,754.23 and a QQQ:SPY relative breakout above the 0.77 level would really begin to confirm that the mid-June low was the major bottom we were looking for as we headed into 2022. Don't misinterpret what I'm saying. I already believe the bottom is in. But now we look for confirmation and if we can make these absolute and relative breakouts, I believe we'll have our confirmation.

Sector/Industry Focus

Automobiles ($DJUSAU) is another industry that looks like it's heading higher. There is more work to do on the charts, but Wall Street has been rotating into autos over the past few weeks and now we simply need a price breakout:

We have a double bottom in place in the 760-765 area. I always look to the price high in-between these lows to be critical price resistance. That closing price resistance is 935.53. For now, we're consolidating in the 760-935 range, but I believe the next breakout will be to the upside.

ChartLists/Strategies

We've had a very nice rally, but that doesn't mean that every stock has moved higher. There are plenty of stocks that will pull back every day to provide trading opportunities. Here are a few underperformers today from the Strong AD ChartList (SADCL) that I found interesting this afternoon:

GOSS:

If GOSS has begun uptrending, then today's 20-day EMA test should hold as support. GOSS fell back after reaching a key resistance level at 9.00, but this 15% pullback in two days seems extreme. I'd look for a bounce and exit on any close beneath the 20-day EMA. It's also defensive in nature if you want to be a bit more cautious heading into the nonfarm payrolls report in the morning. (Disclosure: I purchased GOSS today, but plan to keep a very tight closing stop)

CL:

CL is another defensive stock and another stock testing its now-rising 20-day EMA. It had an intraday low beneath this moving average, but now is trading back above it. This could mark a low. (Disclosure: I purchased CL today, but plan to keep a very tight closing stop)

AZPN:

I love this symmetrical triangle (bullish continuation pattern) that's printed after a strong advance. These patterns typically break in the direction of the prior trend. That's what I'd be looking for here. My only issue with AZPN is that it can trade light volume periodically. Today's volume is just 74,000 shares. The AD line and its relative strength are both bullish.

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.

Thursday, July 7:

LEVI, HELE, WDFC

Friday, July 8:

None

Economic Reports

Initial jobless claims: 235,000 (actual) vs. 230,000 (estimate)

Happy trading!

Tom