EB Daily Market Report - Tuesday, October 10, 2023
Executive Market Summary
- Futures were slightly higher overnight, and our major indices gapped up at the opening bell
- Buying has been steady throughout the trading session with little news, economic, earnings, or otherwise
- The 10-year treasury yield ($TNX) has dropped significantly to 4.64%, falling 15 basis points - after the bond market was closed on Monday in observance of Columbus Day
- Commodities are mixed, but mostly fractionally higher or lower
- For the second straight day, EVERY sector is higher
- Leadership is coming from materials (XLB, +1.86%) and consumer discretionary (XLY, +1.84%)
- Energy (XLE, +0.51%) is lagging after leading yesterday, while technology (XLK, +0.79%) is also lagging
- Hotels ($DJUSLG, +3.55%) and travel & tourism ($DJUSTT, +2.99%) are performing extremely well, leading the XLY
- Tesla (TSLA, +2.48%) has produced mostly hollow candles for the past 2 weeks and could be in the midst of one of its typical "pre-earnings" runs higher
- PepsiCo (PEP, +2.01%) is rebounding from a nasty downtrend after the soft drink maker reported quarterly earnings ahead of expectations, $2.25 vs. $2.17
Market Outlook
One ingredient that keeps a fire under a bear market is a rising Volatility Index ($VIX). As I've previously stated, a jump in the VIX above 13 or 15 or 17 isn't the same as a jump in the VIX above 20. When the VIX moves above 20, it tells us that market makers are beginning to price in EXTREME volatility and we can see HUGE moves in stock prices, mostly to the downside. Always watch that 20 level. I grew very concerned last week, because we kept testing 20. One surge in the VIX and we could have been confronted with a drop in the S&P 500 to perhaps 4000-4050. Fortunately, it never materialized:
Every trip to that 20 level (or slightly above) was rebuked by the bulls and you can see that ensuing price action was quite bullish. The same is taking place now. One HUGE advantage for the bulls right now, though, is that we've been in a very fearful environment with the 5-day SMA of the equity only put call ratio hovering mostly in the .75-.85 area for the last 7 weeks. Don't be surprised to see a very quick and powerful rally that lasts for awhile.
Sector/Industry Focus
Industrials (XLI) have really come to life over the past three days. It started last Friday with a 60-minute positive divergence and then the hot jobs number hit. While most everyone was expecting another drop - and we saw that in early action Friday - the "beneath the surface" signals have been telling us a much different story and now we're seeing the bulls return in full force:
Once positive divergences emerge, I look for a 50-hour SMA test and a PPO centerline test. That tells us that the slowing downside momentum has been "reset" and the market is free to go whichever way it wants. In the case of the XLI over the past two months, we've seen mostly centerline tests and then further downside (blue arrows). In this latest case, however, the XLI has exploded to the upside and has not stopped at the 50-day SMA or with a PPO centerline test. The bullishness continues and in a big, big way.
ChartLists/Strategies
We've seen the market take a very big turn back to the upside since the early-Friday low, so now's the time to check out our Downtrend Reversal scan on our website. I ran it this morning against our SECL, SFECL, SADCL, and RGCL, and 35 stocks were returned. In SCTR order (high to low), here were the Top 15:
HLLY, TAST, CRNX, DLO, CAL, LRCX, LAD, HAYW, PAG, THO, DECK, AZEK, TREX, PRCT, AN
Of these, I found the following quite interesting:
TAST:
TAST broke down intraday on Monday, but recovered by the close. It's showing strength today and could lead to further strength ahead to test recent highs near 7.50. Be careful on a close beneath 5.95 or an intraday move beneath 5.80. Otherwise, I see this one going higher.
LRCX:
LRCX has been holding onto key price support around 600. Yesterday's move back through its 20-day EMA was very encouraging and could be the start of a significant pre-earnings run higher. LRCX reports its latest quarterly results in a little over a week - on Wednesday, October 18th.
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, October 10:
PEP, NEOG
Wednesday, October 11:
WIT
Economic Reports
None
Happy trading!
Tom