EB Daily Market Report - Monday, January 9, 2023

Tom Bowley - January 09, 2023

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Executive Market Summary

Futures were higher this morning as we saw opening gaps across all our major indices
Afternoon selling kick in, however, and erased the gains on both the Dow Jones and S&P 500
The NASDAQ has shown relative strength, but it too has seen a lot of afternoon selling
Technology (XLK, +1.41%) is today's clear leader as semiconductors ($DJUSSC, +2.51%) rebound
The 10-year treasury yield ($TNX) continues its decline, dropping another 5 basis points today to 3.52%
Tesla (TSLA, +6.14%) aided today's early rebound and is currently the best-performing S&P 500 stock
Crude oil ($WTIC, +1.40%) is nearing $75 per barrel, but remains entrenched in its months-long downtrend
The big economic report will be out on Thursday in the form of the December CPI
Earnings season will kickoff on Friday with JP Morgan (JPM) and other large banks

Market Outlook

Aerospace ($DJUSAS) has been an exceptionally strong area of the market, but today we're getting a warning that could lead to additional near-term weakness. Currently, there's a bearish engulfing candle printing and it's doing so with a negative divergence in place:

There are a lot of reversing candles today, as strong morning gains gave way to afternoon selling - not great short-term action. Check out the QQQ today:

Fed Chief Powell speaks at 9am on Tuesday morning and it could be a lot of folks taking risk off the table ahead of that speech. It's difficult to blame them, based on past history. The good news is that we're back above the 20-day EMA, but it's hard to get overly excited with today's reversal.

Sector/Industry Focus

Steel ($DJUSST) has been performing extremely well in recent weeks and it's opened 2023 on a positive note as well. Currently, the DJUSST ranks as the 16th best performing industry of 2023. That's out of 104 industry groups. So steel is clearly maintaining its bullish momentum and relative strength that it experienced in Q4 2022:

The DJUSST is still searching for its long-term trend. But taking out the high between a double bottom is a rather convincing signal that an index or a security is more likely to keep moving in that direction. So I fully expect to see steel break out above recent price resistance near 525. If it does, I'd favor companies like CMC, which I discuss below.

ChartLists/Strategies

While earnings season hasn't officially kicked in as we typically look to the big banks like JP Morgan (JPM) for that honor, we are getting our first glimpses at a few smaller earnings reports. Commercial Metals Co. (CMC) got off to a great start this morning after posting revenues and EPS above expectations. These were the numbers from this morning:

Revenues: $2227.31 mil (actual) vs. $2164.53 mil (estimate)
EPS: $2.24 (actual) vs. $1.99 (estimate)

CMC is part of a very strong steel group ($DJUSST) and this is how both look right now:

CMC saw a nice initial reaction to its better-than-expected quarterly results, gapping higher at the opening bell. After a volatile first 45 minutes that saw CMC hit its intraday low, it settled down into a fairly narrow trading range. Its early weakness took CMC right back to its breakout level. Given the relative strength of steel and CMC, I'm looking for a solid finish into the close and further strength in the weeks ahead. The recent negative divergence has played out with price action nearing its 50-day SMA and the PPO also nearing a centerline "reset". I believe the stock is now poised for a bigger advance. We'll see. CMC is another stock that shows the importance of being part of a strong industry AND showing relative strength among its industry peers. That combination provides better odds of a strong quarterly report and that was the case here.

As I look ahead to earnings due out the balance of this week, here are stocks that would seem to be setting up for strong results:

JPM:

The leadership in JPM heading into earnings is very obvious. After the recent negative divergence resulted in weakness down to the 50-day SMA and PPO centerline, JPM rebounded and it's since broken out with a strengthening PPO. I'll be very surprised if JPM misses estimates or warns.

BLK:

BLK is also showing tremendous relative strength and it's closing in on a very important price resistance line. A breakout would be extremely bullish.

DAL:

DAL has gapped higher and is breaking out. Unlike the others above, however, its peer group - airlines ($DJUSAR) - has struggled more on a relative basis. Still, this relative strength suggests that DAL is performing much better than its peers. I would expect to see a solid quarterly report.

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.

Monday, January 9:

JEF, CMC, AYI, TLRY

Tuesday, January 10:

ACI, SNX

Economic Reports

None

Happy trading!

Tom