EB Daily Market Report - Wednesday, September 14, 2022
Executive Market Summary
- Futures were flat and really didn't change much when the August PPI was released - unlike yesterday with the CPI
- Our major indices opened near the flat line and have traded close to it throughout the morning, with a slight bias to the upside
- The August Core PPI was slightly better than expected, rising 0.2% instead of the anticipated 0.3% increase; unfortunately for the bulls, the market's reaction wasn't nearly as positive as yesterday's was negative
- Lots of mixed numbers in commodities today, but crude oil prices ($WTIC, +2.81%) are notably higher, approaching $90 per barrel
- The 10-year treasury yield ($TNX) is down 3 basis points to 3.39%; in pre-market it hit 3.47% and nearly reached the June 14th high of 3.48%
- Leadership today is in energy (XLE, +2.76%), which is benefiting from higher crude prices
- Meanwhile, materials (XLB, -1.16%) and real estate (XLRE, -1.15%) are struggling on a relative basis
- Moderna (MRNA, +6.69%), Starbucks (SBUX, +5.62%), and a slew of energy names lead the S&P 500 higher today
Market Outlook
I've turned a bit more bullish this morning. Not much has really changed. But I am overall bullish, so I like to watch for key support levels for bounces. I also pay MUCH attention to options-expiration week. Both of these favor a short-term rebound. Here's a one-month hourly chart to point out the price support at hand for the QQQ (ETF that tracks the NASDAQ 100):
I decided to take on a bit more risk by trading the QLD. But if the QQQ fails to hold onto support near that 292.50 level, I'll be O-U-T of the QLD. No big chances in this market environment. And if I get a rally over the next 2-4 days, I'll take profits and move to the sidelines for the Fed meeting and policy statement next week.
My long trading strategy this week will be based primarily on max pain, realizing that market makers have financial incentive to see higher prices over the next several trading days.
I've also discussed this a lot recently, but don't forget that the second half of September can be very difficult for U.S. equities. It's one of the worst half-month periods of the calendar year. So if I'm fortunate enough to make money on my max-pain-related trades, I'll have no problems booking profits and walking away. If I get stopped out with small losses, I'm ok with that.
Sector/Industry Focus
Software ($DJUSSW) hasn't been good. You don't need to be some kind of super hero market technician to figure this one out. After a solid rally off the mid-June bottom, the group has once again fallen under big selling pressure and it's not far from that June low:
I've drawn thick green lines to mark MAJOR absolute and relative price support. But that green-shaded area has provided a lot of key price support on multiple occasions. That's the 4100-4200 range on the DJUSSW. Today's low was 4192, once again testing this support zone. A key positive on this chart is the continually solid AD line, suggesting that morning weakness can many times be bought for intraday profit. Given that many software stocks are heavily traded in options, we could certainly see a big recovery in this space between now and early next week.
Check out that SCTR score of 22.9. Many reversals occur during Opposite George week, and this low SCTR score reflects how weak software has been. Don't be shocked by a quick reversal to wipe out many net in-the-money put options.
ChartLists/Strategies
Well, because it's options-expiration week, if I were to trade individual stocks, I'd first look at our max pain candidates. Those with a ton of net in-the-money put premium would be my choice in the near-term. 3 stocks that I mentioned specifically in last night's max pain session were NVDA, MMM, and BBBY. I took small positions in all 3 this morning after the August PPI report came in slightly better than expected.
Another way to approach "Opposite George" week (TV sitcom Seinfeld reference) is to pull up some of the worst one-month performers on our Strong Earnings ChartList (SECL). That looks like this right now:
That's a baker's dozen (13) of the worst one-month performers on our SECL. Software ($DJUSSW), which I mentioned above, has been holding recent support just below 4200, so the 3 software stocks on this list could perform very well IF we see this industry finally get a lift.
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 14:
None
Thursday, September 15:
ADBE, XRAY
Economic Reports
August PPI: -0.1% (actual) vs. -0.1% (estimate)
August Core PPI: +0.2% (actual) vs. +0.3% (estimate)
Happy trading!
Tom