EB Daily Market Report - Special Edition - Tuesday, November 8, 2022
I want to focus today on my favorite earnings setups, but I will give you a quick market update first.
We're up across the board as the Dow Jones once again leads the action higher. If you weren't in our Sneak Preview webinar last night and didn't listen to my Trading Places LIVE show this morning, the following seasonality table shows that, over the course of this secular bull market since 2013, the Dow Jones has a history of relative strength vs. the NASDAQ during the final four months of the year:
At the bottom of each calendar month, there's a percentage. This percentage represents the Dow's AVERAGE level of outperformance or underperformance over the past 10 years. Notice that 7 of the first 8 months, the Dow underperforms. April is the only exception. But during the final four months, the Dow Jones has a history of outperforming the NASDAQ. Therefore, I wouldn't read too much into its current outperformance as this is the historical norm. The fact that the Dow has outperformed by such a wide margin is likely a reflection of our interest rate environment.
10 of 11 sectors are higher today, with energy (XLE, -0.03%) the lone sector in negative territory. Leadership is found in materials (XLB, +2.37%) and technology (XLK, +1.11%). The latter is being aided by renewed strength in semiconductors ($DJUSSC), which are up 2.46% today and nearly 5% over the past week. It's nice to see a bounce in this beaten-down industry group, but this will need to continue if we're truly trending higher again.
On to trades relating to earnings.....
I love to trade stocks that return to the TOP of gap support if they've recently gapped higher on VERY HEAVY volume and continued moving higher after that gap. When it returns to the top of gap support, I can trade with a fairly tight stop in place and I've had great success with this strategy. I'll show you 3 stocks that are trying to bounce off such support right now and 3 others that I'd watch in the days ahead for weakness to test such support:
MEDP:
CALX:
DXCM:
And here are the 3 that COULD become solid trades IF they reach their critical gap support levels:
GILD:
UHS:
CHX:
There's a stock that reported its quarterly results this morning that may qualify, in time, to be added to the above 6. It's Planet Fitness (PLNT, +12.49%) as PLNT has already traded an unusually high number of shares. It pulled back temporarily this morning, but has come roaring back. Check this one out:
A strong finish here and I'd view today's open to be solid support moving forward, especially given the massive volume that's accompanying the stock.
Tesla (TSLA) is completely unrelated to the earnings gaps discussed above, but I do want to point out that it's attempting what could be a MAJOR reversal off long-term price support with a positive divergence. Check it out:
Whether a true reversal occurs depends on how TSLA finishes today. But the fact that it's reached multi-year price support suggests to me that a trade at the current level is worth the risk. Thursday's CPI report, if hotter than expected, could send growth stocks reeling even further. Just keep that in mind. (Disclosure: I bought TSLA today)
Happy trading!
Tom