EB Daily Market Report - Tuesday, April 11, 2023

Tom Bowley - April 11, 2023

The Bulls-Eye Forecast This Saturday!

We have scheduled a new event for this Saturday, April 15th. The event will begin at 10:00am ET and all EarningsBeats.com members will automatically be registered. There is no need for you to register individually. We will send out room instructions prior to the event.

We're holding this event as a sequel to our MarketVision 2023. I want to update everyone as to where we stand, take a look at bullish and bearish arguments and let the weight of the evidence determine where we're likely headed during the balance of Q2 and full year 2023.

Executive Market Summary

Futures were mostly higher overnight, albeit fractionally
By the open, however, futures rotated and we saw the NASDAQ futures turn negative, while both the Dow futures and S&P 500 futures remained positive
That opening relative weakness has continued on the NASDAQ as this aggressive-growth index has lagged throughout the session thus far - something to watch into the afternoon
We could be witnessing some hedging ahead of tomorrow's big March CPI report, scheduled for release at 8:30am ET
Bond traders are selling the 10-year treasury as the 10-year treasury yield ($TNX) climbs nearly 4 basis points to 3.45%, but still below the 20-day EMA, currently at 3.49%
We can also see this hedging as technology (XLK, -0.81%) is easily the worst-performing sector
9 sectors are higher, however, led by energy (XLE, +1.24%) and materials (XLB, +1.21%); is this the head fake before another relatively-tame inflationary report or is it the real deal? Check back tomorrow for that answer
Software ($DJUSSW, -1.50%) is notably weak in the technology area
Money is rotating into small caps ($SML, +1.06%) and mid caps ($MID, +1.04%) - more on this below
Caterpillar (CAT, +2.84%) is aiding the relative strength in the Dow Jones today
Cryptocurrencies like bitcoin ($BTCUSD, +1.98%) remain quite strong and I take a look at bitcoin below

Market Outlook

I wrote yesterday about small caps ($SML) and mid caps ($MID), suggesting that they could begin to show relative strength as they were approaching key relative support. Well, for the second straight day, these two indices are leading the action. Check out the absolute charts of both and note the similarities to mid-July and mid-October, just before Q2 and Q3 earnings season started, respectively:

Small caps ($SML):

Mid caps ($MID):

Now here we are in mid-April, just before Q1 earnings season kicks off. These bottoming structures look nearly identical. In both previous instances, the key level to clear was the first attempt at a rally (red horizontal lines). Once that price resistance breakout was confirmed, these two asset classes rallied strongly. Don't be shocked to see the bulls strike for a third time, especially given all the other bullish signals that I've been discussing over the past several months.

Sector/Industry Focus

My, oh my, how the cryptos have come back to life! It wasn't long ago, they were being written off by most analysts. Ummmm, not so fast. Personally, I don't trade cryptos, but I do look at them as "risk on" investments. When they're seeing bullish action, I believe that's a positive for stock market direction. Bitcoin ($BTCUSD) is heavily followed and tracked, so let's look at this crypto up close:

I noticed that the AD line is climbing nicely as well. However, one cautionary note there. Cryptos trade 24/7, so they don't technically have "opens" and "closes" like stocks. I believe the AD line can be used as evidence of stock market manipulation to the advantage of big Wall Street firms. I'm not sure we can take that same approach to cryptos. Therefore, I'd personally give the AD line less weight when evaluating cryptos.

ChartLists/Strategies

After a big earnings-related gap higher, I like to trade stocks that return to the top of gap support. Yesterday, I provided AOS as a perfect example. Thus far, it's bounced nicely off of that support level. Occasionally, when you see me annotate charts and provide support levels after gaps higher, I'll highlight two key price levels. The first is the top of gap support - as with AOS. The other support level to watch would be the intraday low the day after earnings. In most cases, stocks that gap higher with volume run into a market maker issue. Market makers provide liquidity, so when everyone wants to buy on an opening gap higher, market makers take the opposite side of the trade and sell short. That's the reason why most gaps will "fill", or return to the prior day's closing price.

But when demand returns to a stock intraday, that intraday low can also mark important price support. I'm mentioning this here, because I'm watching a stock that is currently violating that intraday low after earnings. However, an afternoon reversal could mark a very significant bottom:

OKTA has moved beneath that intraday low of 76.30. If we don't reverse today, then there's a strong chance we'll see the entire gap fill back to the bottom of gap support at 71.44. The AD line is quite strong, so a big reversal should not be ruled out. The safest way (definitely not safe though) to trade OKTA would be to buy in stages from the current price down to that 71.44 level, then perhaps use a closing stop in the 70.00-71.00 area. OKTA is a big mover and possesses significant upside potential, especially if I'm right that interest rates will continue to drift lower and money continues to rotate into growth areas like software ($DJUSSW), OKTA's peer group.

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, April 11:

ACI, KMX

Wednesday, April 12:

INFY

Economic Reports

None

Happy trading!

Tom