EB Daily Market Report - Thursday, August 3, 2023
Executive Market Summary
- Futures were lower overnight as the recent short-term selling appeared ready to extend into at least one more day
- We've seen a morning reversal, however, and the NASDAQ has turned positive ahead of this afternoon's HUGE earnings report duo - Apple, Inc. (AAPL, -0.31%) and Amazon.com (AMZN, +0.39%)
- The small cap Russell 2000 (IWM, -0.26%) is down, but bounced off its critical short-term 20-day EMA support
- A very big development is today's yield breakout on the 10-year treasury yield ($TNX), which is up 11 basis points to 4.19%; we're not far from testing the 4.33% high from October 2022
- Crude oil ($WTIC, +2.18%) is jumping again, rising back above $81 per barrel
- Energy (XLE, +1.70%), buoyed by higher crude prices, is easily today's best-performing sector
- The defensive real estate (XLRE, -2.69%) and utilities (XLU, -2.24%) are both down significantly, likely due to the aforementioned rising treasury yields
- Expedia (EXPE, -16.58%) is the 2nd worst performer in the S&P 500, despite crushing its earnings estimate; it did, however, come up shy of revenue expectations and it also enjoyed a huge pre-earnings advance
Market Outlook
The Russell 2000 (IWM) is my trade of choice currently. The NASDAQ 100 (ETF is QQQ) will likely move up or down tomorrow in tandem with two of its key component stocks, Apple, Inc. (AAPL) and Amazon.com (AMZN). The July nonfarm payrolls will be out tomorrow and I view this as the stock market's earnings report. Volatility can be significant as the market digests the latest jobs news. Given the recent push higher in the 10-year treasury yield ($TNX), this impact could even be greater than normal.
Simply put, I like the technical conditions better on the IWM. The daily chart suggests that we could see the 20-day EMA act as very significant support and, thus far, that's exactly what's happening:
I love this bounce off the 20-day EMA and grew more aggressive (bought TNA) after we lost, then recaptured, it earlier this morning. I've set my stop below today's low. If the 20-day EMA is to hold as support, I don't think we should see another move down there. If you decide to participate in leverage at all, consider setting a hard stop beneath today's earlier low, or perhaps a trailing stop using whatever dollar amount or percentage you're comfortable with. I'll decide at the close how much risk I'm willing to accept heading into today's key earnings reports and tomorrow's nonfarm payrolls report. I might consider a move from TNA to IWM to lessen exposure, if I'm not stopped out intraday.
Sector/Industry Focus
Short-term, our major indices remain under some pressure. Here's a recent intraday look at some key intermarket relationships:
I like the blue circles and what's transpiring today. It could change, however, and another sudden downward burst in these relative ratios would alter my short-term view. Entering into positions at key levels, like the 20-day EMA, is awesome, because we can protect very quickly to the downside. Unfortunately, the other side is that we can be whipsawed. It's a part of trading.
While the QQQ did not reach its 50-day SMA to reset its PPO, I can think of worse situations than to hold the QQQ into AAPL and AMZN earnings reports. They tend to deliver the goods. But there is absolutely no escaping the risk that comes with two MAJOR earnings reports and one MAJOR economic report (Nonfarm payrolls). Sitting out and missing a possible spike is a risk, while jumping in and suffering a big gap down tomorrow morning is a very real possibility as well.
ChartLists/Strategies
Outside of Select Medical (SEM), I don't have any individual trades and don't plan on adding any today ahead of the biggest day of the quarter (in terms of number of earnings reports). My SEM trade is fairly small and I'm looking for a solid report and gap higher tomorrow. If I'm wrong, I'll lick my wounds in the morning.
One way I try to manage risk, and I've been doing this a lot since the cyclical bear market ended in October 2022, is mostly avoiding individual stock trades. I've found it more difficult and more time consuming to manage individual stock trades and I've been successful with trading more ETFs and leveraged ETFs.
So, I'll sit this one out in terms of individual stock trades.
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 notable 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 that you own or are considering owning.
Thursday, August 3:
AAPL, AMZN, COP, AMGN, BKNG, SYK, BUD, DEO, ABNB, GILD, PBR, CI, REGN, BDX, SO, APD, CNQ, ICE, FTNT, MNST, ING, PH, MCHP, ABEV, MSI, SQ, TEAM, APO, SRE, MRNA, CTVA, BCE, LNG, CMI, BBD, RMD, BBDO, ED, WBD, CEG, VMC, APTV, PWR, DKNG, GMAB, CQP, ALNY, NET, K, COIN, RKT, VTR, EXR, TRGP, BALL, IRM, EXPE, WLK, PBA, ENTG, BIP, AES, EPAM, VRNA, LNT, MMP, TRMB, H, PCTY, GEN, FND, BIO, GDDY, RBA, TFX, CPT, OTEX, RYAN, REG, BKI, BRKR, LAMR, DINO, WMS, RGA, DBX, PNW, DVA, WCC, HII, CGNX, HAS, BLD, W, DLB, WRK, ITT, TPX, TXG, SWN, OLED, TKR, CLVT, PLNT, ALTR, LNTH, FOUR, WK, BECN, SNDR, GIL, POWI, HGV, NTRA, QLYS, DNB, RRR, MTSI, CRUS, VC, LTHM, DOCN, BDC, GOLF, PGNY, SEM, APPN, BE, SYNA, NTLA, ITRI, BHC, OPEN, ZD, TGNA, SHAK, PBH, IRTC, SPT, YELP, TMDX, INSM, DQ, WERN, MORF, OUT, CARG, MWA, IDCC, SKT, KTB, NKLA, TNDM, COHU, SAVE, UPBD, KTOS, CRSR, GOOS, MYGN, SWI, RDFN, CARS, SABR, SBH, PLYA, EB, FVRR, XPOF, GDOT, TMST
Friday, August 4:
ENB D, LYB, TU, PPL, MGA, CBOE, EVRG, IEP, CRBG, PAA, XPO, BEPC, ESNT, FLR, GTES, FSR, VGR, CNK, OMI, TWST, FLGT, AXL
Economic Reports
Initial jobless claims: 227,000 (actual) vs. 225,000 (estimate)
Q2 productivity: 3.7% (actual) vs. 1.3% (estimate)
Q2 unit labor costs - annual rate: +1.6% (actual) vs. +2.6% (estimate)
Happy trading!
Tom