EB Daily Market Report - Tuesday, May 14, 2024

Executive Market Summary

• Futures were mixed this morning, but quickly turned lower when the April PPI came in hotter than expected
• However, that was an initial knee-jerk reaction, because the March PPI numbers were adjusted much lower, resulting in the bigger increase in April
• On a net basis, PPI came in exactly as expected and its annual rate remains close to 2%
• Many commodities are higher, but don't count crude oil ($WTIC, -1.37%) among them as it's fallen to $78 per barrel
• The 10-year treasury yield ($TNX) initially jumped higher on the PPI report, but once it was noted that March PPI was revised lower to fully account for the April spike, the TNX cooled and is down 3 basis points to 4.45%
• Leadership is solid today as technology (XLK, +0.93%) is the standout sector; 9 of 11 sectors are higher
• Weakness is felt primarily in consumer staples (XLP, -0.33%), a defensive sector
• Automobiles ($DJUSAU, +2.96% - see below) and semiconductors ($DJUSSC, +1.47%) are aiding the bulls today
• Home Depot (HD, +0.09%) gapped lower after reporting its latest quarterly results, but has rebounded to post a modest gain

Market Outlook

Well, we're prepping for a big economic report in the morning. April CPI will be out and its impact on both the bond and stock markets could be quite significant. The expectation right now is for both headline CPI and Core CPI to come in at +0.3%. If we hit this number or come in below it, I'd expect a big rally tomorrow, potentially setting up the S&P 500 for its next all-time high. However, a Core CPI number that comes in above +0.3% could stop this rally in its tracks. As a reminder, here is what the S&P 500 currently looks like:

RSI has pushed back through 60, a positive development. The PPO has cleared centerline resistance and is pointing higher, suggesting that bullish momentum is building. The golden cross has resulted in the 20-day EMA moving back above the 50-day SMA, which is necessary for a continuing advance. Everything is in place.

Now let's see how the April CPI comes in tomorrow morning at 8:30am ET.

Sector/Industry Focus

Automobiles ($DJUSAU) are seeing leadership as Tesla (TSLA) bounces off its key moving averages:

The PPO now shows bullish momentum. Price/volume looks quite bullish and TSLA turned higher off of gap support and its major moving average tests. BUTTTTTT.....one key negative here is the relative weakness of TSLA and the autos in general. Watch those red arrows on the bottom two panels. If TSLA:DJUSAU and the DJUSAU:$SPX break above key levels, then TSLA could be setting up for a very significant advance. It's just too early to make that call yet.

ChartLists/Strategies

Our Short Squeeze ChartList (SSCL) has been on absolute FIRE the past few days. These stocks and the entire ChartList can be ignored most of the time, but when they get going, it can get very exciting quickly. If you trade these, just make sure you take profits along the way and keep trailing stops in play. Here's the top performers today from the SSCL:

The one I've traded today has been PROK. I like the fact that it's just making a breakout AND volume is soaring:

Unless it completely falls apart into the close, I plan to hold this one overnight, looking for another gap higher in the morning. These short squeeze stocks are EXTREMELY risky. Do not invest any money into them that you are not willing to lose. PROK could open tomorrow at 8 or at 2, I have no idea. But I can only imagine having a short position right now, watching my losses mount. I know what I'd do - I'd cover my position (buy). Let's see if this one continues to run.

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, May 14:

HD, BABA, SONY, SE, ONON, NXT, IGT, BOOT, HBM

Wednesday, May 15:

CSCO, GRAB, DT, ZTO, SRAD, MNDY, MMYT

Economic Reports

April PPI: +0.5% (actual) vs. +0.3% (estimate)

April Core PPI: +0.5% (actual) vs. +0.2% (estimate)

Happy trading!

Tom