EB Daily Market Report - Tuesday, October 4, 2022
My Schedule
I'm among the 17 technical analysts that StockCharts.com has invited to speak at ChartCon 2022. The event will be held on October 7th and 8th (this Friday and Saturday). I will be traveling to Redmond, WA on Thursday, October 6th and will not be returning until Tuesday, October 11th. Our schedule at EarningsBeats.com will obviously be significantly impacted. At this time, I'm expecting to do Trading Places LIVE on Wednesday morning, October 5th, but I will not likely do another show until Wednesday, October 12th. There will be no EB Digest articles on either Friday, October 7th or Monday, October 10th. I will not be writing a Daily Market Report from Thursday, October 6th through Tuesday, October 11th. John Hopkins, if available, may provide a quick update each of those days.
ChartCon is available to everyone, but there is a fee. For more information on speakers, agenda, and cost, you can CLICK HERE. I know there will be a significant savings for StockCharts.com members - as much as 67% off - so taking out at least a free 30-day trial subscription prior to signing up would make good financial sense, if you're not already a StockCharts.com subscriber.
Executive Market Summary
- Futures were very strong overnight and we saw our major indices gap significantly higher at the opening bell
- Twitter (TWTR, +12.67%) is soaring after Elon Musk proposed going through with the TWTR deal at the original price
- Cryptocurrencies are higher today, with bitcoin ($BTCUSD) and etherium ($ETHUSD) both up 2.25%
- The U.S. Dollar (UUP, -1.08%) remains on the defensive, aiding a further rally in gold ($GOLD, +1.69%)
- The 10-year treasury yield ($TNX) is down 3 basis points to 3.62%
- Crude oil prices ($WTIC, +3.38%) have jumped another $3 per barrel to more than $86 - that's a $10 rise in just 6 trading days
- Energy stocks (XLE, +3.57%) are again leading, given the strength in crude
- All 11 sectors are up for the second straight day, with defensive sectors trailing; real estate (XLRE, +0.97%) and consumer staples (XLP, +1.03%) are the primary laggards
- Recreational stocks ($DJUSRQ, +8.79%) are rallying strong after setting a fresh 52-week low on Monday
- Cruise line stocks are at the top of the S&P leaderboard, paced by Norwegian Cruise Lines (NCLH, +15.97%)
Market Outlook
Our initial test on the S&P 500 is upon us. The earlier intraday high of 3789.49 had moved within a whisker of a 20-day EMA test. That moving average currently resides at 3797. If you believe the stock market is heading lower, then you should treat this 20-day EMA test as an opportunity to short. I am NOT in that camp, however, and believe we're sideways consolidating off the mid-June low with support in the 3585-3666 range, while price resistance is the mid-August high near 4300:
The rising AD line continues to portray a market where the big firms are more than happy to buy any shares that others are willing to sell. A move through the 20-day EMA and significant price resistance at 3900 would add to this theory.
I believe we're going to have a strong Q4. As a reminder, the S&P 500 has moved higher from the close on October 27th through the close on January 18th 62 of the last 71 years. That's an extremely high percentage and underscores the upcoming historical strength that we typically enjoy.
Sector/Industry Focus
Software ($DJUSSW) is improving, but a close back above the 20-day EMA is what I'd like to see:
I firmly believe that Wall Street firms are accumulating software stocks, preparing of a big advance ahead. That's what that surging AD line since June tells me. Therefore, acquiring leaders in the space makes a lot of sense. Cadence Design Systems (CDNS) is one of those leaders, which is one reason we're adding it as a Model Trade - see below.
ChartLists/Strategies
Here's an update of our last remaining Model Trade:
ENPH - hit our target of 297 early this morning, so we'll take the profit after reaching 295 on two previous occasions. It's pulled back intraday and is now testing its key 20-day EMA and 50-day SMA, both of which are just above 291. A strong finish could lead to higher prices, perhaps as high as the 320.62 September closing high.
We're going to add Cadence Design Systems (CDNS) as a Model Trade. I loved yesterday's move above price resistance and the 20-day EMA on solid volume. Today, CDNS gapped higher, but it's since pulled back, providing opportunity for entry. I like it at the current price of 171.64, with a second entry on a 20-day EMA test, currently at 167.97. We'll use a closing stop beneath 160 and our target will be the mid-August high close of 193.09. In addition to improving technical conditions on CDNS, it's performed extremely well during October and November over the past 10 years, so seasonal tailwinds should help as well. Here's the seasonality chart of the last decade:
Over the past 10 years, CDNS has averaged nearly 7% per October/November. It's actually been higher every November for the past 11 years, so historical tendencies certainly favor the stock.
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, October 4:
AYI, NG, SGH
Wednesday, October 5:
LW, RPM, HELE
Economic Reports
August factory orders: +0.0% (actual) vs. +0.2% (estimate)
Happy trading!
Tom