EB Daily Market Report - Wednesday, August 7, 2024

Executive Market Summary

• Futures began after hours lower on Tuesday, but had reversed overnight as our major indices all gapped higher
• Unfortunately, after a bit of morning strength, sellers have emerged and all major indices are now lower
• The 10-year treasury yield ($TNX) continues its march higher off of its recent low at 3.67%; there's no economic news, but still we've seen sellers of treasuries send the TNX 5 basis points higher to 3.94%
• Commodities are mixed; crude oil prices ($WTIC) are rebounding 2.65% today, moving back above $75 per barrel
• Meanwhile, gold ($GOLD, -0.12%) is relatively flat, while both silver ($SILVER, -1.55%) and copper ($COPPER, -2.04%) take larger hits; COPPER is below $4 for the first time since March - not good
• Cryptos remain under pressure, especially ethereum ($ETHUSD, -4.98%)
• Defensive and value-oriented sectors are outperforming today as energy (XLE, +0.66%) and utilities (XLU, +0.39%) lead
• Autos ($DJUSAU, -3.52%) lead discretionary stocks (XLY, -1.66%); semiconductors ($DJUSSC, -3.29%) are under pressure once again, leading to a weak technology group (XLK, -1.16%)
• Initial jobless claims will be out on Thursday morning and they're now taking center stage as potential economic weakness unfolds; the expectation is a drop in claims to 240,000 from last week's 249,000

Market Outlook

Last Wednesday, just before the Fed announcement, I showed a weekly chart of the NASDAQ 100 ($NDX) and highlighted a potential channel to watch. I indicated that if the rising 20-week EMA was violated on that weekly chart, it would be damaging technically. Well, we not only violated that 20-week EMA support, but we nearly tested the bottom of said channel. Channel support and price support now line up fairly close to the 17000 level below. Check it out:

The negative divergence usually suggests an upcoming 50-period test, which we did see with Monday's big opening gap lower. While I'm favoring a short-term (60-90 days) pullback, as opposed to a lengthy bear market, I still believe there's considerable downside, especially after the rally we've seen off the Monday low. My minimum downside target on the NDX is 17000, but I wouldn't be shocked if the NDX falls below this level. The Volatility Index ($VIX) will play a role in this, because high VIX readings typically leads to impulsive selling that clears obvious support levels.

The bottom line is that we still have a potentially serious market storm brewing, one that we need to remain very cautious of.

Sector/Industry Focus

I believe that if you were to ask most market analysts and technicians what area of the market is the most important to follow, the overwhelming answer would be semiconductors ($DJUSSC). They are the "poster children" of growth in the U.S. Most of the time, the S&P 500 follows the lead of semiconductors. Therefore, it's important to keep a close eye on this group at all times. The following chart shows the relative strength of semiconductors vs. the benchmark S&P 500 ($DJUSSC:$SPX), along with the absolute performance of the SPX in the panel below:

There are a couple points I want to make about this chart. First, the April decline and our current decline both saw semiconductors begin to lose relative strength PRIOR to the S&P 500 top. In other words, we need to keep in mind that this type of relative behavior is, by itself, a short-term bearish signal. Secondly, when the April decline ended, semiconductors immediately led the S&P 500 off the bottom (blue circle). Currently, I'm struggling to see much leadership in semis (red circle) and that worries me - at least for now. We'll have to see if I'm right, but I view this as a very significant signal that we're going to see further immediate selling ahead.

ChartLists/Strategies

We had our Live Trading Room this morning at 10:00am ET and suggested that those willing to short could do so at Monday's gap resistance. For me, however, I was planning to remain in cash and just watch the action, spending most of my time researching developments in the market as they occur to help guide me (and all of our EB members) during the upcoming couple months.

I will point out trading candidates here from time to time, but just remember that as long as I remain cautious the market, appealing trade candidates will likely be few - at least until we see short-term signals of a market bottom. The 5-day EMA of equity only put call ratio ($CPCE) reaching .75 or above, preferably .80, would be one such signal. Currently, this 5-day reading is has reached 0.72, so we're getting closer. Another big selloff ahead and a reading that actually climbs into the .80 range would be very enticing, especially as next Friday's August monthly options expiration approaches.

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.

Wednesday, August 7:

NVO, DIS, SONY, MCK, EQIX, CVS, SHOP, EMR, MNST, ET, HLT, OXY, MFC, ROK, WPM, GPN, NTR, HUBS, APP, ZBH, WBD, ATO, CPAY, BAM, TPL, BGNE, MRO, HOOD, WES, WMG, NI, CF, SRPT, UHAL, DT, TECH, CRL, CW, Z, RL, CACI, ZG, WIX, NYT, MKSI, DUOL, LPX, AZEK, REYN, RCM, VERX, JXN, BCO, LYFT, OSCR, GH, BOOT, FROG, GFF, KTOS, NMAD, VSH, SITM, TGNA, MQ, MRVI, KLIC, ODD, KMT, ZD, MGNI, RAMP, EXTR, UPWK, SONO, SEDG, DBD, CSGS, TGI, BMBL

Thursday, August 8:

LLY, GILD, BN, PH, CRH, TTD, LNG, DDOG, MLM, TTWO, VST, QSR, PBA, EDR, TKO, GMAB, RPRX, EXPE, NWSA, NRG, AKAM, VTRS, PODD, USFD, SUZ, WMS, NTRA, EPAM, LAMR, INSM, SBS, CYBR, SN, ELF, ONTO, DBX, CHH, U, MUR, NXST, FOUR, NVMI, SEE, DOCS, VRRM, HAE, RDNT, CPRI, YETI, FIVN, DIOD, SYNA, REZI, SG, UA, CLSK, PRFT, DOCN, EVH, TGLS, CARG, YELP, TXG, KSS, HBI, PLUG, DNUT, NVAX, SOUN, TASK

Economic Reports

None

Happy trading!

Tom