EB Daily Market Report - Wednesday, February 5, 2025

Tom Bowley - February 05, 2025

Executive Summary

Futures were down overnight, especially on the NASDAQ, after Alphabet (GOOGL, -7.87%) and Advanced Micro Devices (AMD, -6.71%) both tumbled after reporting quarterly results
Surprisingly, technology (XLK, +1.07%) is one of the best-performing sectors today
Despite AMD's misfortunes, the semiconductors ($DJUSSC, +3.41%) are rallying - see Market Outlook below
Communication services (XLC, -1.31%) is the worst performing sector today and has not been spared the GOOGL carnage; internet ($DJUSNS, -4.20%) is having a rough session
Automobiles ($DJUSAU, -3.31%) is weighing on consumer discretionary (XLY, -1.13%) as Tesla (TSLA, -3.50%) is testing short-term support near 375
The 10-year treasury yield ($TNX) is down 9 basis points to 4.42%, breaking below its 50-day SMA - more on this below in Sectors/Industries
Gold ($GOLD, +0.24%) continues to make new highs in the current uncertain market environment
Crude oil ($WTIC, -2.05%) is down to nearly $71 per barrel, though energy (XLE, +0.17%) is higher
QUALCOMM (QCOM, +1.69%) will test semiconductors' resolve tonight as it will report earnings as an under performer within the space over the 9 months or so

Market Outlook

We know that semiconductors ($DJUSSC) are critical in terms of our major index performance, because this group is so heavily weighted. While I wouldn't call today's strength a "game changer", the DJUSSC has been able to clear its recent cluster from 17800-19000. Check out this chart:

It would appear that the DJUSSC has a shot to move up quickly to test the now-declining 20-day EMA (red arrow). The result to this 20-day EMA test would provide us more evidence about whether the DJUSSC has started a downtrend (failure at the 20-day EMA would suggest this) or whether we might be able to return to recent highs in this period of sideways consolidation.

Sectors/Industries

The 10-year treasury yield ($TNX) has been dropping recently and, today, fell below its 50-day SMA for only the 2nd time since early October. The 10-year treasury yield is closely tied to mortgage rates, so when the TNX falls, many times we'll see a big rally in home construction stocks ($DJUSHB). That hasn't really been the case since January 27th, though, as the DJUSHB has moved back down to approach a test of the early-January low:

Is this giving us an early warning signal regarding the economy? Look at the AD line. It's dropping like a rock and saw little bounce, even with the temporary rise in the DJUSHB during the second week of January. Something is spooking the home construction stocks and it's not just mortgage rates.

ChartLists and Trading Strategies

Not every trade is going to work in our favor and understanding that is important, so that we don't hold a failing stock for too long. However, the EB Digest stock from Monday did provide a very solid signal. If you recall, I discussed Allegiant Travel Co (ALGT), which showed a failed breakout attempt last Friday, when it hit an intraday high of 107.57, but closed back down 102.43. This occurred with a negative divergence in play, which only added to the bearish signal. Just a couple days later, ALGT hit a low of 80.48 after its earnings report and it's attempting to rebound off of that low today.

Check out the huge selling after the reversing candle and negative divergence printed:

Upcoming Earnings

Be sure to check out our Upcoming Earnings ChartLists that are uploaded onto our website at the beginning of every week.