EB Daily Market Report - Wednesday, September 7, 2022
Executive Market Summary
- Futures were weak overnight, strengthened in early morning hours, then ended up opening rather flat
- Buying has been apparent throughout today's session with leadership in consumer discretionary (XLY, +2.99%)
- The only sector lower is energy (XLE, -1.10%), which isn't too bad considering that crude oil prices ($WTIC, -5.35%) are breaking down to its lowest level since early January
- Nearly all commodities are heading lower, though gold ($GOLD, +0.89%) is bouncing after testing 2-year lows recently
- The 10-year treasury yield ($TNX), after surging on Tuesday, is down 7 basis points today, aiding the stock market's recovery
- Renewable energy ($DWCREE, +5.22%) is having a very strong session and many component stocks are littering the S&P 500 leaderboard
- 3M Co (MMM, +3.61%) is leading the Dow Jones higher, reversing what's been an incredibly weak 10-day period for the stock
- The equity-only put-call ratio ($CPCE) has seen 5 half-hour readings above 1.0 today, suggesting that many do not believe in this rally; that could be very good news
Market Outlook
It's very difficult to be an energy (XLE) fan right now. First, the XLE has a very strong positive correlation with the price of crude oil ($WTIC), as we'd expect. Well, here's the current look at crude oil and this does NOT include today's walloping (WTIC is down 5.6% at last check):
This is an ugly chart and if we consider the current price of crude oil, which is $81.90 per barrel, there'll be another BIG breakdown unless we see a massive reversal in a hurry. The RSI broke below its bullish 40-80 range back in June. Note that the recent high didn't see the RSI pierce 60. When the RSI is in a 20-60 range, those are readings from a downtrend. Until this changes, we should assume prices are heading lower.
Sector/Industry Focus
A small number of groups have traded higher over the past month, led by renewable energy ($DWCREE), which has gained more than 23%. Restaurants & bars ($DJUSRU) have been strong, though nowhere close to DWCREE's strength. The selling of late is likely creating a solid opportunity for stocks in this space. Check out the bounce off 50-day SMA support today:
During uptrends, these types of pullbacks are exactly what we look for to get aggressively long. But I understand, given current market conditions, the Fed's current policy, inflation worries, recession fears, etc, how difficult it is to pull the trigger. Still, I believe the mid-June low will ultimately be proven to be THE low. That's why I'm playing by bull market rules right now.
ChartLists/Strategies
Our Model Trades for this week are all performing extremely well. It certainly helps to finally have favorable market conditions. I ran our Downtrend Reversal scan from our website against our Strong Earnings ChartList (SECL) and it returned the following stocks:
Here are two that looked interesting to me:
CHRS:
Biotechs are beginning to turn higher on a relative basis and that will only help CHRS. Yesterday, CHRS tested its 50-day SMA and it appears to be pivoting back to the upside.
PGNY:
I would have preferred a move down to the 36.50 area to test both key gap support and the 50-day SMA. However, PGNY still has a long way to go to reach its recent high, so the reward-to-risk still looks solid. A second entry could be contemplated on any further weakness down to gap support.
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, September 7:
NIO, CPRT, GME, CASY, DSGX, ASO, ASAN, KFY, VRNT, AVAV, PLAY, AEO, PHR
Thursday, September 8:
ZS, DOCU, BILI, RH, FCEL
Economic Reports
Beige book released at 2:00pm ET
Happy trading!
Tom