EB Daily Market Report - Thursday, May 11, 2023

Executive Market Summary

• Futures were mixed overnight as the aggressive NASDAQ was positive, while the Dow Jones and S&P 500 were much weaker
• Initial jobless claims spiked to 264,000, the highest level we've seen in many months, coming in well above the 245,000 consensus estimate
• Meanwhile, headline PPI was slightly below expectations, while core PPI matched expectations
• The combination of potentially lower interest rates to fight off a possible recession AND lower inflationary pressures should provide the NASDAQ ample opportunity to continue its 2023 leadership
• Key cryptocurrencies like bitcoin ($BTCUSD, -2.04%) and etherium ($ETHUSD, -2.44%) are struggling today
• Commodities are mostly lower, including big drops in silver ($SILVER, -4.84%) and copper ($COPPER, -3.85%)
• Communication services (XLC, +1.22%) is enjoying another very strong session, led by internet stocks ($DJUSNS, +3.48%)
• Energy (XLE, -1.15%) and materials (XLB, -1.02%) are lagging today, extending a lengthy period of relative underperformance by these two groups
• Walt Disney (DIS, -8.36%) is today's worst-performing S&P 500 company after its not-so-great quarterly earnings report
• PacWest Bancorp (PACW, -23.53%) is being slammed after disclosing the bank lost more than 9% of its deposits last week

Market Outlook

Let's step back and check out the Dow Jones for a minute. I believe this will be the last to make a key breakout, primarily because it's comprised of more large conglomerates - and many of these companies are more value-oriented vs. growth-oriented. In a secular bull market advance, value-oriented stocks and indices will likely lag. Here's how the "safer" Dow Jones Industrial Average currently looks technically:

It's interesting to see that the Dow Jones actually cleared its August 2022 price resistance during its Q4 advance. But remember, that was when value was DOMINATING growth. The NASDAQ 100, for example, threatened to break below its October low during the month of December. Historically, industrials (XLI) and financials (XLF) love Q4, especially November. I believe normal historical rotation aided the Dow Jones back then. Now, however, we're seeing a much different market geared towards growth stocks as the 10-year treasury yield ($TNX) falls.

I expect the Dow Jones will clear the two overhead price resistance levels within the next month or two, but it'll lag the strength we see in the more aggressive NASDAQ 100 index.

Sector/Industry Focus

It's hard not to love the absolute and relative moves of the internet group ($DJUSNS). One large cap stock that had been holding the group back was Alphabet (GOOGL), but that's no longer the case, which suggests this group may just be starting a much larger upside move:

We haven't seen our major indices clear the August 2022 price high, but seeing key leading sectors and industry groups do so is extremely bullish, in my view. I believe it's only a matter of time before our major indices follow suit. The AD line, which was weak to open the year, also recently hit a 52-week high. What's not to like here in one of the most aggressive areas of the stock market?

ChartLists/Strategies

Since internet stocks are breaking out, I thought I'd do a quick review of our Strong Earnings ChartList (SECL) for stocks within this industry. Currently, we have 9 internet stocks on the SECL. Without a doubt, Meta Platforms (META) remains my favorite, but I also like the improving chart of Alphabet (GOOGL) and the recent pullback on Yext, Inc. (YEXT). Here are the 3 charts:

META:

I rarely argue with a leading stock in a leading industry and that's exactly what META is. Is it overbought? Yes, so it could certainly consolidate here for awhile. But it's also hard to fathom the market moving appreciably higher without strength from META. I like it.

GOOGL:

GOOGL has been a laggard within internet stocks for several months, but it's now just breaking out on both an absolute basis AND relative basis. Volume has been quite strong to support this move higher.

YEXT:

This one is a bit more risky, in my view. However, if internet stocks lead over the next few months, it's hard for me to imagine that YEXT won't at least go along for the ride. And it could do MUCH better than that. Check out the volume (well above average) back in March to accompany that big push higher. The recent selling has been bearish, but the volume also has been mostly below average. If this one setting up for a big reversal? Again, it's risky, but attractive to an extent as well.

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, May 11:

PBR, BN, JD, ING, SLF, TEF, PKI, NICE, ENTG, GEN, NWS, CRL, TPR, USFD, CYBR, HAE, YETI, ATHM, SANM, UTZ, DNUT, MARA, IAG, FVRR

Friday, May 12:

CPG, SPB

Economic Reports

April PPI: +0.2% (actual) vs. +0.3% (estimate)

April Core PPI: +0.2% (actual) vs. +0.2% (estimate)

Initial jobless claims: 264,000 (actual) vs. 245,000 (estimate)

Happy trading!

Tom