EB Daily Market Report - Thursday, July 25, 2024

Tom Bowley - July 25, 2024

Executive Market Summary

Futures were near the flat line overnight, avoiding a huge gap lower after a rough Wednesday
The early morning wasn't kind as most growth stocks sold off hard, before rebounding after 10am ET
Q2 GDP came in much stronger than expected, but so too did the PCE component
Surprisingly, the 10-year treasury yield ($TNX) is down 3 basis points to 4.25% as bond traders continue to send a message to the Fed to cut rates NOW
Falling stock prices this morning drove the Volatility Index ($VIX) to 19.36 earlier today, its highest level since the April market selloff
Cryptocurrencies are struggling as etherium ($ETHUSD, -7.58%) drops to 3125, not too far off the HUGE support range of 2800-3000
Aggressive sectors are split today as the more value-oriented industrials (XLI, +1.24%) and financials (XLF, +0.78%) perform well; trucking ($DJUSTK, +4.46%) is leading transports ($TRAN, +1.60%) higher
Meanwhile, internet ($DJUSNS, -1.41%) is weighing on communication services (XLC, -0.53%)
Biotechs ($DJUSBT), defense ($DJUSDN), and aerospace ($DJUSAS) are among industry groups breaking out today - more on these 3 below
ServiceNow, Inc. (NOW, +14.39%) is today's top-performing S&P 500 company, after posting excellent quarterly results that exceeded expectations

Market Outlook

As long as we don't blow it this afternoon with late selling, I'm seeing reversing candlesticks (hammers, dojis, bullish engulfing) on TONS of charts and major moving averages on key indices are holding as well.

Let's start with the NASDAQ 100 ($NDX). Yesterday (actually this morning due to my internet delay), I highlighted the NDX breakdown beneath its 50-day SMA. Well, it looks like we're getting a nice reversal today on this same daily chart:

We tested, and even moved below intraday, the initial price support level. Thus far, though, today's reversal has cleared back above that support. A close above it should be viewed as short-term bullish.

If we step back and use perspective on the longer-term weekly chart, the 20-week EMA test is quite clear:

I do not believe this is THE low, but it could be the short-term low.

Sector/Industry Focus

We know growth stocks are being hit hard, but rotation has made many areas in the stock market look much better technically. It's important to see nearly all sectors and industry groups participate in a secular bull market and, right now, that's exactly what we're seeing. While industries like semiconductors and internet have cooled drastically, other areas like biotechnology and defense/aerospace are breaking out. BEAUTIFUL!

Check out these 3 industry groups:

Biotechs ($DJUSBT):

Defense ($DJUSDN):

Aerospace ($DJUSAS):

Unfortunately, these breakouts don't mean our major indices will move back to all-time highs. When sectors like the XLK, XLY, and XLC take breaks from profit taking, it represents 50% of the S&P 500. Therefore, strength in other areas likely won't be enough to push the S&P 500 back to all-time highs. However, money rotating into some value-oriented areas is a MUCH better alternative than to see money leave the stock market altogether. This rotation is FUEL for a secular bull market and a necessary component.

ChartLists/Strategies

I ran a scan looking for biotech, defense, and aerospace stocks on our Strong Earnings ChartList (SECL). This is how the scan was written and the filtered results:

Scan Syntax:

Scan Results:

20 stocks were returned. This is a GREAT way to use our research. Find areas that you like - for whatever reason (breakouts, 20-day or 50-day tests, reversing candles, etc) - and then pull up a specific scan looking in our proprietary ChartLists.

Here are the stocks from above that I like:

Biotechs - TWST, GH, BPMC, MYGN, ABBV
Defense - LDOS, LMT, KTOS, LHX (I'd want to see a breakout on AXON)
Aerospace - RTX, ERJ, HEI

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, July 25:

ABBV, AZN, TTE, UNP, UL, HON, RTX, SNY, BTI, NOC, CARR, AJG, PCG, NSC, DLR, VALE, VLO, LYG, LHX, DXCM, KDP, RCL, DOWN, STM, NDAQ, BKR, CBRE, HIG, TSCO, EIX, ARGX, WTW, TW, DOV, ASX, DTE, WST, DECK, WY, ERIE, PFG, CINF, CMS, EME, VRSN, RS, SSNC, LPLA, LUV, MAS, TRU, DOC, RPM, GLPI, TFII, POOL, FTI, LKQ, JNPR, FIX, TXRH, EMN, SKX, APPF, ATR, ORI, MHK, HAS, FCN, WEX, ENSG, SPSC, ALSN, NOV, AAL, LEA, CRS, FSS, DAR, R, COOP, OLN, BYD, LAZ, FCFS, HOG, TPH, ITGR, CNX, AXNX, VC, ROG, UCTT, XRX, NTCT, COUR

Friday, July 26:

BMY, CL, AON, MMM, E, CHTR, NWG, CNC, TROW, BAH, AVTR, SAIA, BEN, GNTX, TNET, SXT, NWL, CRI, VRTS

Economic Reports

Q2 GDP (initial estimate): 2.8% (actual) vs. 2.0% (estimate)

Q2 PCE - annual rate: 2.3% (actual) vs. 1.9% (estimate)

Initial jobless claims: 235,000 (actual) vs. 238,000 (estimate)

June durable goods: -6.6% (actual) vs. +0.3% (estimate)

June durable goods ex-transports: +0.5% (actual) vs. +0.2% (estimate)

Happy trading!

Tom