EB Daily Market Report - Thursday, February 29, 2024
March Seasonality Report
This one snuck up on me. It's hard to believe the month of February has come and gone already. I'll be working on this Seasonality Report this afternoon and hope to send it out today. Worst case, I'll have it out tomorrow.
Executive Market Summary
- Futures were slightly lower overnight, but reversed higher on tame inflation data this morning
- The January PCE and Core PCE price indices both came in as expected, which gave futures a boost
- Small caps (IWM, +0.36%), in particular, had a big chance today to make a key intermediate-term price breakout, but thus far has failed to capitalize - see Market Outlook below
- The 10-year treasury yield ($TNX) dropped 3 basis points to 4.25% after the PCE data matched expectations
- Leadership continues to rotate on almost a daily basis as real estate (XLRE, +0.85%) leads the charge today
- Technology (XLK, +0.64%), after taking a breather, is back near the top of the leaderboard as semiconductors ($DJUSSC, +2.10%) rebound and threaten to close at an all-time high
- Health care (XLV, -0.62%) has dipped over the past 4 trading sessions to near its rising 20-day EMA
- Health care providers ($DJUSHP, -0.75%) is the weakest industry group in this sector, falling well below both its 20-day EMA and 50-day SMA, after setting a 52-week high on Monday
- Advanced Micro Devices (AMD, +7.58%) is #2 on the S&P 500 leaderboard today as it looks to make another major breakout - chart shown below in ChartLists/Strategies
Market Outlook
IWM (ETF that tracks the small cap Russell 2000) opened higher this morning, threatening a significant breakout. It's failed intraday thus far, but there's still plenty of day left. Here's where we are now, but let's see how we close:
Do you see the triple top just below 200? Throughout that period of sideways action, check out the rising AD line throughout. There was plenty of buying, but we never saw the breakout as large cap stocks soared. Now that small cap stocks are on the verge of breaking out, there's plenty to be excited about. First, note the difference in the PPO now vs. previous attempted breakouts. The daily PPO is bouncing off centerline support. During prior breakout attempts, they all ended in the same fashion, with the daily PPOs crashing through centerline support. This asset class is simply acting different now and that difference is much more bullish. I don't know if it's today or not, but I see a MAJOR breakout coming.
The intraday behavior of small caps vs. the larger-cap QQQ is also intriguing, rising rapidly during the month of February:
From a bigger picture perspective and thinking more in terms of the benchmark S&P 500, we know that when the 253-day SMA of the equity-only put-call ratio ($CPCE) rolls over and begins a downtrend, it's super bullish for U.S. equities. History tells us this, it's not simply my opinion. Take a look:
And this makes COMMON SENSE to me. When the CPCE stays high for an extended period of time, it tells us that traders are ridiculously bearish. There's only one way to go. The 253-day SMA of the CPCE at the end of 2021 was ridiculously bullish, meaning that there was little upside left in the market, if you were objective enough to back away from all the cheerleading on CNBC and focused on the common sense of this chart.
Sector/Industry Focus
Here is an INTRADAY chart of the XLY vs. XLP. The top panel completely ignores opening gaps and instead focuses ONLY on what happens from the opening to closing bells. While the XLY:XLP ratio in the 2nd panel (including gaps) has yet to return to a high, the INTRADAY ratio is quite bullish, residing at the very top of its range. A breakout here only adds to the bullishness we've seen over the past 12-18 months.
ChartLists/Strategies
On a very short-term intraday chart, I see key price resistance on both NVIDIA Corp (NVDA, +1.72%) and Super Micro Computer (SMCI, +5.20%) where bears have recently been able to claim control. Should the bulls push price action above these key levels, then one or both of these could be off and running again.
NVDA:
Breaking out of this range doesn't necessarily result in HUGE consequences for the stock price over the next year or two. But it does provide us a clue as to perhaps the very short-term direction. Currently, we're right in the middle of this range.
SMCI:
Again, SMCI is in the middle of the short-term trading range. Which way will it break?
AMD:
AMD is a completely different animal. This isn't a 4-5 day trading short-term range. Instead, AMD made a huge advance from November through January and it's been consolidating sideways for the past 6 weeks. Today is seeing volume expand and the trading range cleared. Barring a final two-hour meltdown, this is another confirmed breakout on AMD.
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, February 29:
CRM, RY, TJX, SNOW, MNST, HPQ, VST, EDR, VTRS, SUZ, NTNX, OKTA, PSTG, BLD, EME, SRPT, SQM, NRG, VIPS, NTRA, DCI, IEP, DUOL, DV, MARA, ADT, GTLS, NXST, SRCL, MMSI, SQSP, IOVA, AAP, KTB, AI, IQ, SHOO, NARI, PDCO, FTDR, TGTX, DQ, WRBY, MGNI, ZUO, ACMR, TASK
Friday, March 1:
RDNT, PLUG
Economic Reports
Initial jobless claims: 215,000 (actual) vs. 210,000 (estimate)
January personal income: +1.0% (actual) vs. +0.4% (estimate)
January personal spending: +0.2% (actual) vs. +0.2% (estimate)
January PCE price index: +0.3% (actual) vs. +0.3% (estimate)
January Core PCE price index: +0.4% (actual) vs. +0.4% (estimate)
February Chicago PMI: 44.0 (actual) vs. 47.3 (estimate)
January pending home sales: -4.9% (actual) vs. +0.8% (estimate)
Happy trading!
Tom