EB Daily Market Report - Tuesday, August 2, 2022

Executive Market Summary

• Futures were weak for the second straight day as our major indices gapped lower
• Also, for the second straight day, our major indices rebounded and turned positive
• Action is bifurcated now, however, with the NASDAQ showing leadership
• That NASDAQ leadership is a bit surprising, given the HUGE reversal in the 10-year treasury yield ($TNX)
• The TNX was lower at 2.52% before rallying strongly to a high of 2.75% moments ago
• Crude oil ($WTIC, +0.77%) is up fractionally, hanging onto key price support at $93 per barrel
• Utilities (XLU, +0.65%) and health care (XLV, +0.19%) are among today's leading sectors - not great
• Sectors are split, with 5 higher and 6 lower
• Travel & tourism stocks ($DJUSTT, +6.68%) are having a strong session, but Caterpillar (CAT, -4.82%) is today's worst performing Dow Jones component after delivering mixed results

Market Outlook

It's been a solid run higher for U.S. equities over the past several weeks, but odds are building for a bit more selling. When I see these types of short-term warning signs, I don't short. Sometimes, bull market rallies can be quite stubborn and the bulls simply stampede, erasing all warning signs in their path. So when I'm bullish the Big Picture, the last thing I want to do is get caught in a short position while the market is marching higher. Instead, for me, I build more cash and look for long positions in areas that could benefit from short-term market rotation - defensive sectors.

As I mentioned yesterday, hourly negative divergences are beginning to appear on the major indices. The NASDAQ 100 was featured yesterday, so let's look at the S&P 500 today:

The market has shown a lot of resiliency during this climb, but don't be surprised if another leg higher is met with selling. We're due for some profit taking and hourly negative divergences can signal the likelihood of a 1-3 day selling episode, possibly longer.

Sector/Industry Focus

One thing that has really benefited equities recently has been the drastic drop in the 10-year treasury yield ($TNX). At today's low, the TNX had fallen nearly a full percentage point from its early-June high at 3.48%. Today's low reached 2.52% before a wild rebound back to 2.74% just a few minutes ago. That has likely spooked traders - at least in the very near-term. We do need to keep things in perspective. The TNX bounce still leaves it well below the 20-day EMA:

The momentum here is clearly lower. The PPO turned negative in early July and has continued to spiral lower. I'm expecting the now-declining 20-day EMA to provide resistance on any further selling of treasuries (and corresponding rise in the yield).

ChartLists/Strategies

This afternoon, I published our August Short Report, which highlighted several potential short squeeze stocks off of our latest Short Squeeze ChartList (SSCL). It was just updated last night. If you haven't viewed/downloaded it yet, you'll find it on our website.

I don't know how the market will finish today - or how well these short squeeze stocks will hold up - but I did personally take small positions in a handful of SSCL stocks. The entire ChartList is performing well right now. Over the past week, the benchmark S&P 500 has gained 4.69%. 39 of the 48 SSCL stocks have outperformed the S&P 500 over the past week. A staggering number (28) have gained at least 10% in the past week, more than doubling the S&P 500 return. 8 have gained more than 25%. To say these stocks have found some buyers would be a serious understatement. Will it continue though? Well, that's a great question. But I will say one thing. When these stocks move, they move FAST! That's why I decided to take a small position in BLNK, WKHS, SPCE, SKLZ, and NKLA. There are many others that could be bought as well. Just please remember these stocks are CRAZY volatile and big losses can mount quickly if they reverse back to the downside. That's why I always take small positions.

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, August 2:

AMD, SPGI, CAT, PYPL, SBUX, BP, GILD, ABNB, ITW, OXY, ETN, PXD, MAR, MPC, UBER, RACE, EA, MCHP, PRU, WCN, IDXX, MPLX, KKR, PEG, WEC, DD, CMI, VRSK, AME, EXR, CTRA, ZBH, STE, WAT, IT, MTCH, CNP, PAYC, SEDG, ZBRA, EXPD, INCY, MKL, LPLA, XYL, PEAK, ENTG, LDOS, FMC, TAP, WLK, CHK, SCI, RGEN, FNF, HSIC, CZR, AIZ, LEA, SEE, CGNX, EXAS, SRPT, BLD, UNM, HUN, SOFI, RNG, CRUS, LTHM, IGT, SPWR, AYX, MRCY, MSTR, VSH, SPT, JBLU, HLF, CWH, TEX, OTLY, KAR, VCYT, SWI, AVID, ATEN, CNDT, TGI

Wednesday, August 3:

CVS, BKNG, MRNA, REGN, EPD, MET, MCK, FTNT, NTR, EXC, O, MELI, YUM, ET, TT, ALL, ABC, LCID, ALB, EBAY, SLF, CDW, ANSS, ETR, PPL, IR, HZNP, BIP, MRO, CLX, GNRC, FLT, ATO, TW, BMRN, TPL, MGM, WTRG, OVV, HST, CRL, NI, GDDY, FICO, DOX, AFG, LUMN, EQH, DT, WES, QRVO, LSI, UTHR, MPW, LAMR, BRKR, BWA, DISH, LNC, WSC, TTEK, HOOD, BERY, CFLT, RGLD, RUN, WU, CLH, SMG, DQ, ATHM, UAA, TNDM, ALSN, SITM, RPD, SPR, LIVN, TWNK, SFM, OUT, WERN, KLIC, NUVA, BCO, ACLS, FROG, XHR, EVRI, ELF, VCEL, CRTO, NBR, SWTX, FSLY, ADTN, SSYS, CCRN

Economic Reports

None

Happy trading!

Tom