EB Daily Market Report - Wednesday, June 7, 2023
Executive Market Summary
- Futures were relatively flat overnight, with a slight tilt towards the upside
- After opening strong, the Dow Jones, S&P 500, and NASDAQ all faltered, especially the latter
- Small (IWM, +1.70%) and mid caps (MDY, +1.29%), however, have continued their recent surge and are showing excellent leadership
- Transports ($TRAN, +1.91%) are moving further and further away from their recent downtrend line breakout, leading industrials (XLI, +1.21%)
- Energy (XLE, +2.72%) and real estate (XLRE, +1.57%) are the two best-performing sectors on the session
- Meanwhile, technology (XLK, -1.30%) is showing signs of wear and tear after a very strong move higher in recent weeks
- Commodities are mixed with crude oil ($WTIC, +1.25%) and natural gas ($NATGAS, +2.25%) higher, while gold ($GOLD, -1.06%), silver ($SILVER, -0.40%), and copper ($COPPER, -0.38%) are all lower
- The 10-year treasury yield ($TNX) is on the move higher, jumping 9 basis points to 3.79%, as the next Fed meeting approaches (next Tuesday and Wednesday)
- Campbell Soup (CPB, -7.54%) is the worst-performing S&P 500 stock, after reporting its latest quarterly results
Market Outlook
Remember, "perspective" is key when evaluating the stock market long-term. We go through periods of rotation and most traders and analysts have short-term memories. Everyone is talking about how bad small cap and mid cap performance has been. They conveniently forget the very strong relative periods these two asset classes had in the recent past. We could be on the cusp of starting another such period. Below we can clearly see that the relative strength lines of the IWM:SPY and MDY:SPY have both turned up rather decisively. It's a big reason why I've shifted so heavily towards small caps and why I've leveraged the group. It's all about perspective. The IWM never broke down below key long-term price support at 160 and now we're beginning to turn back up. I believe this has staying power - until it shows me that it doesn't:
On the IWM:SPY ratio, I'm looking for at least a test of the 0.475 relative price resistance level. If we get there, don't be shocked to see it coincide with a fairly significant rise in the IWM - perhaps to 197, where we've seen major tops form in August 2022 and February 2022. A break above that level? Then we've really got something to talk about!
Sector/Industry Focus
Industrials (XLI, +5.38%) are just below energy (XLE, +7.13%) and materials (XLB, +6.41%) in terms of weekly sector performance. Bullish rotation is taking place, this time moving more away from growth and back into value. So value is likely the area where we'll find our best trades, at least temporarily. I fully expect to see growth return with a vengeance, but in the meantime, we may find our best short-term trades in more value-oriented areas. Here's the improvement in the XLI:
PPO turning much more bullish. AD line is strong and strengthening. Downtrend line broken with sights now set on overhead candle body price resistance at 103.32. If that breaks.....
ChartLists/Strategies
Industrials are definitely looking like a very hot area right now, or at least the group is heating up. One big part of that is the increasingly strong transports. Below are stocks in the Dow 20 Transports that look like buys now or are closing in on very big resistance levels:
AAL:
CSX:
EXPD:
KEX:
LSTR:
MATX:
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.
Wednesday, June 7:
BF/A, TCOM, CPB, GME, SMAR, OLLI, VRNT, UNFI, SMTC
Thursday, June 8:
MTN, DOCU, TTC, BRZE, SIG, NAPA
Economic Reports
None
Happy trading!
Tom