EB Daily Market Report - Thursday, October 13, 2022

Tom Bowley - October 13, 2022

ChartList Update

I updated the following ChartLists and you can now view or download them from our website:

Strong Earnings (SECL)
Strong Future Earnings (SFECL)
Raised Guidance (RGCL)
Short Squeeze (SSCL)
Upcoming Earnings for Friday

Executive Market Summary

Futures were slightly higher overnight, but that quickly changed when the September CPI was released
September CPI and Core CPI both came in hotter than expected and futures tumbled
The NASDAQ quickly lost 3% in the premarket and the S&P 500 pierced 3500 in the first few minutes of trading
A massive reversal and recovery has followed, however, and all of our major indices are now solidly higher
Barring a final 1-2 hour swift move lower, today's action should be viewed quite bullishly
Semiconductors ($DJUSSC, +2.47%) hit a low of 4777 following an Applied Materials (AMAT, +4.01%) warning and the CPI report, but then rebounded 10% intraday, before pulling back a bit this afternoon
The finish needs to be watched closely today as my sustainability ratios have not exactly been flying higher, so a weak close could portend additional selling ahead
Cryptocurrencies, somewhat surprisingly, are not participating in today's rally
The 10-year treasury yield ($TNX) remains an issue, up 4 basis points to 3.94% in a volatile session
All 11 sectors are higher, led by energy (XLE, +3.89%) and financials (XLF, +3.63%)

Market Outlook

Yesterday, I mentioned that we could see an exhaustive gap down at some point. I didn't realize it would be less than 24 hours away. Many times, major market bottoms occur with capitulatory-type reversing candles. Today, we're seeing all of this, which is very good news. We can always move to new lows, which would be bearish for sure, but I'm saying this is it. Barring a massive reversal this afternoon and a close back down near the low, I believe today's open is going to hold. Back on Saturday, January 8th, during MarketVision 2022, I suggested a worst-case S&P 500 range to the downside of 3500-3800. This morning's low was 3491.58. We have bullish rotation, sentiment that has reset, positive divergences on the hourly, daily, and weekly charts, an exhaustive gap and capitulatory reversal, and we're approaching the most bullish historical period of the year. I'll be shocked if this doesn't ultimately prove to be the low.

A BIG reversal into the close could change things, but it certainly doesn't feel as though we're going to see that.

Sector/Industry Focus

I don't know if you noticed, but the Volatility Index ($VIX) barely budged to the upside this morning, despite a very large gap lower after the CPI came in hotter than expected. Check this out:

We had a really bad inflation report, a big warning from another key semiconductor company, Applied Materials (AMAT), and futures PLUNGED. Yet the VIX never came close to clearing highs from Tuesday and Wednesday. FEAR IS DISSIPATING even though the news seems to keep getting worse. That should tell us something. Check out those black arrows above. 8 peaks in the VIX and EVERY SINGLE ONE is lower than the one before. Bear markets thrive on fear, but fear isn't cooperating.

All of the above is very good news. But let's keep it real. Not everything is great. Nearly every one of my sustainability ratios is down. Because these ratios have held up quite well over the past few months, I'm not going to read too much into a few hours of trading. However, if we continue to rally off today's open for the next few to several days, it'll be important, in my opinion, for these ratios to follow suit. Today, they are not:

As you can see, many have improved off the early morning low, but have not moved into positive territory for the day, despite our major indices easily busting through gap resistance (Wednesday's close). I'll continue to watch this closely.

ChartLists/Strategies

I want to see this strength carry into the close. If it does, I'll look this evening for potential trade setups for tomorrow and provide those EARLY before the market opens on Friday.

I considered moving some of my QQQ position into QLD at the open, in anticipation of this type of reversal. I decided against it, simply to remain more cautious. But I am heavily invested on the long side as I continue to believe that we're going to see a BIG rally into year end.

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, October 13:

TSM, BLK, INFY, PGR, WBA, FAST, DAL, DPZ, CMC

Friday, October 14:

UNH, JPM, WFC, MS, C, PNC, USB, FRC

Economic Reports

September CPI: +0.4% (actual) vs. 0.2% (estimate)

September Core CPI composite: +0.6% (actual) vs. +0.4% (estimate)

Initial jobless claims: 228,000 (actual) vs. 225,000 (estimate)

Happy trading!

Tom