EB Daily Market Report - Tuesday, August 8, 2023
Executive Market Summary
- Futures were significantly lower this morning after Moody's downgraded 10 bank stocks and put others on notice
- As we've seen over the past year, the early selling transitioned into afternoon buying, with small caps (IWM, -0.75%) rebounding the most
- The IWM, SPY, and DIA have all moved past their opening prices; meanwhile, the QQQ has rebounded, but is well shy of its opening price
- Cryptocurrencies are strong today as bitcoin ($BTCUSD) has jumped nearly 3%
- Crude oil ($WTIC, +1.31%) is testing key price resistance at $83 per barrel; energy (XLE, +0.44%) trails only health care (XLV, +0.77%) in terms of sector performance
- Technology (XLK, -0.96%) is today's worst-performing sector, keeping relative pressure on the NASDAQ 100 ($NDX, -1.08%)
- The 10-year treasury yield ($TNX) is down another 5 basis points to 4.02% as we near two key inflation reports - Thursday morning's July CPI and Friday morning's July PPI
- Eli Lilly (LLY, +14.45%) is leading a strong pharma group ($DJUSPR, +3.61%) after posting strong quarterly results and raising its guidance
Leveraged ETF Update
I receive plenty of questions from members asking me what I'm doing/thinking about my leveraged positions.
IWM/TNA - my plan was and still is to accumulate the TNA (3x ETF that tracks the IWM on long side). I've been holding on the long side, but I had exited the TNA and moved entirely into the IWM as overhead resistance approached, and ultimately failed, near 198. The breakout, even though just temporary, suggested that any pullback to the 20-day EMA would hold. I made my final entry into the TNA at 38.25 yesterday and had an INTRADAY stop set at 192.25. Our rallied continued on Monday afternoon, so my stop expired.
Given the sizable gap lower this morning, I wanted to see how we traded throughout the day before making any decision on whether to sell the TNA. We've had another big rally off the intraday morning lows, which I view as extremely bullish. I'm holding for now.
XBI/LABU - I have a fairly small position in LABU, which made holding it yesterday a little more tolerable. The XBI gapped lower and showed almost zero intraday strength. I'm still holding this one, but have no plans to add any shares.
Market Outlook
I don't look at the Dow Jones very often, but it's been showing solid relative strength and has been resilient as other areas of the market have sold off. Check out this long-term weekly chart:
The encouraging part about the Dow's current rally is that its weekly PPO is only at 1.5 and rising. We've seen it approach 5 on a few occasions during this secular bull market, so there's still plenty of room to run later this year.
Sector/Industry Focus
The stock market's early woes began when Moody's downgraded 10 banks and put others on downgrade watch. Personally, the charts are telling me that bad news is already baked into the price action and the AD line suggests gap downs are being accumulated by the big Wall Street firms. Check this out:
I'm not quite yet sold on the banks' relative strength, but I do feel the worst is behind the banks. When bad news is released and we see an all day rally following the gap lower, that's a pretty good indication that Wall Street is using ANY panic by retail traders as an opportunity to accumulate shares.
ChartLists/Strategies
I'm in the process of updating the Raised Guidance ChartList (RGCL), which takes a LONG time, especially in the heart of earnings season. But I added Confluent, Inc. (CFLT) to the RGCL earlier and actually bought it this morning as it tested its key gap support level from the earnings/raised guidance. CFLT had a HUGE positive reaction after (1) posting quarterly EPS that was flat vs. an expected loss of .06, (2) posting quarterly revenues of $189.29 million, ahead of consensus estimates of $182.18 million, and (3) SIGNIFICANTLY raised its guidance. CFLT announced its FY 2023 revenues would be 767-772 million, up from 694 million. And its FY 2023 loss was expected to be .15. CFLT management indicated the loss would actually fall between .02 and .05. That's excellent guidance. CFLT gapped higher and, this morning, returned all the way back to that gap support:
There was no guarantee that gap support would hold, but PLENTY of buyers showed up at the opening bell after those earnings and guidance were released. I felt the risk was worth the potential reward as I see CFLT ultimately moving to new highs.
I've also added Coinbase Global (COIN) this afternoon. This was the one stock in mid-July that I had said to be very careful because of its large net in-the-money call premium. It's fallen back 30 bucks and is attempting a reversal today off of key support:
The reward to risk here is exceptional. I'm looking to hold 85.00 on a closing basis and my target is the recent price high near 110. I calculate the reward to risk as 7:1. I can do well in the stock market if I can set up every trade like this one.
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.
Tuesday, August 8:
LLY, UPS, ZTS, DUK, TDG, LI, DDOG, GFS, CPNG, SLF, GOLD, FNV, RIVN, TTWO, EC, QSR, HZNP, BR, EXPD, RPRX, PODD, FLT, SMCI, EDR, FOXA, WMG, J, FOX, BSY, AKAM, AXON, TECH, JHX, TWLO, CELH, TOST, DAR, WES, QGEN, FNF, ARMK, TPG, NRG, INGR, DOCS, SEE, NXST, MASI, ATKR, DUOL, UPST, QDEL, PRGO, HAE, SQSP, LYFT, CPRI, FLYW, UA, KLIC, HL, TWNK, LZ, MARA, MQ, ARRY, ENR, RPD, AMC, BMBL, CRCT, OLPX, TGLS, RDNT, VCYT, ZIP, LRN, VZIO, MODN, EVBG, LGND, IRBT, CRNC, APPS
Wednesday, August 9:
DIS, SONY, TTD, MFC, ILMN, RBLX, SRAD, BAM, WYNN, APP, UHAL, VST, CRL, TTEK, BERY, CAE, PLUG, REYN, WEN, VSH, PENN, GDRX, BCO, NOMD, VRRM, ALRM, XPEL, VSAT, SONO, MGNI, JACK, RAMP, ARHS, BLDP, WRBY, EVRI, AVID, TASK, SSYS, DDD, SKIN, CLNE
Economic Reports
None
Happy trading!
Tom