EB Daily Market Report - Thursday, June 13, 2024

Executive Market Summary

• Futures were mixed overnight and our major indices remain mixed
• Futures improved after a very tame May PPI report, which followed the better-than-expected May CPI report on Wednesday
• The NASDAQ 100 is holding onto gains, while the other indices struggle on a relative basis
• The selling that began yesterday on the Dow Jones and Russell 2000 continue today as those two indices lag
• Transportation stocks ($TRAN) are very weak, dropping 500 points from 15350 to 14850 in roughly 24 hours
• Despite mostly weak trading today, the Volatility Index ($VIX) is only higher by 2.3% to 12.32; any VIX reading below 13 is a bullish reading, in my view
• Commodities are mostly lower as silver ($SILVER, -4.19%) takes another big hit
• The 10-year treasury yield ($TNX) is down 3 basis points to 4.27% in response to the May PPI report and weaker-than-expected initial jobless claims
• Technology (XLK, +0.81%) is once again the leader as other sectors mostly struggle; real estate (XLRE, +0.31%) and consumer discretionary (XLY, +0.02%) are the only other sectors that are positive today
• Meanwhile, industrials (XLI, -1.15%) are being dragged down by that weak transports group
• Broadcom, Inc. (AVGO, +13.27%) leads the S&P 500 after a very solid quarterly earnings report
• Adobe Systems, Inc. (ADBE, -0.28%) will report earnings today after the close

Market Outlook

There's no doubt that transportation stocks ($TRAN) are important to the overall market health. Here's a long-term chart that shows the correlation between the S&P 500 and TRAN is quite strong, meaning that they typically move in the same direction:

The red circles highlight the INVERSE correlation currently in play. This is the 2nd largest inverse correlation reading during this secular bull market. I'd expect 1 of 2 things to happen. Either we see the transports begin a lengthy rally within their current up channel or the S&P 500 falters. I believe we'll see the former, but one way or another, I do expect to see this relationship return to a more normal positive correlation.

Sector/Industry Focus

I enjoy looking for and then trading patterns. On today's Trading Places LIVE show, I mentioned that the industrials (XLI) were in what appears to be an ascending triangle pattern, which is a bullish continuation pattern. But it must hold recent 121 support to keep this pattern alive and it's having a rough day:

Two weeks ago, I pointed out a potential cup with handle bullish continuation pattern, as you can see above. That pattern fell apart and we're POSSIBLY in an ascending triangle pattern. I point this earlier failure out, because these patterns are not CONFIRMED patterns until they "execute", which is a fancy name for a breakout. The XLI is very weak today, but its AD line is fairly strong. Strong AD lines typically mean stronger afternoon action. Let's see if XLI reverses today and begins to rebound.

ChartLists/Strategies

Arista Networks (ANET) is a stock that appears to be printing the right side of a cup today:

If I owned ANET right now (which I don'), I'd sell it as a trader, knowing that today very well could be a short-term top. By selling at resistance, I could always buy back as a handle forms back down towards the 20-day EMA. And if ANET suddenly surges later this afternoon, I could buy it back. Trading is all about managing risk. Right now, that tail to the upside and false breakout suggests there's much more downside risk here to consider.

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, June 13:

ADBE, RH, SIG, KFY

Friday, June 14:

None

Economic Reports

Initial jobless claims: 242,000 (actual) vs. 222,000 (estimate)

May PPI: -0.2% (actual) vs. +0.1% (estimate)

May Core PPI: +0.0% (actual) vs. +0.3% (estimate)

Happy trading!

Tom