EB Daily Market Report - Wednesday, May 28, 2025

Tom Bowley - May 28, 2025

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Executive Summary

Futures were mixed overnight, but our major indices did start off fairly strong after the opening bell
Early gains have been lost throughout the trading day
Technology (XLK, +0.33%) and communication services (XLC, +0.25%) are the two leading sectors on the session, so this is NOT a risk-off environment
Semiconductors ($DJUSSC, +1.10%) are aiding the XLK as NVIDIA Corp (NVDA, +1.08%) gets set to report its quarterly earnings after the bell today
The remaining 9 sectors are lower today, led by a very weak utilities (XLU, -1.44%) sector
Despite the minor selling, the Volatility Index ($VIX, -0.95%) is down as fear dwindles
Commodities are mostly lower, though crude oil ($WTIC, +1.12%) is bucking the trend
The 10-year treasury yield ($TNX) is up 4 basis points to 4.48% as traders await not only the NVDA earnings report, but also the 2nd estimate of GDP; the annual rate of PCE is expected to remain unchanged at 1.8%
Buckle up for NVDA!

Market Outlook

Nearly one week ago, I provided a chart showing that the Dow Jones was potentially printing a reverse right shoulder in a bullish bottoming reverse head & shoulders pattern. Nothing since that time has changed this bullish pattern. Instead, it now appears that the reverse right shoulder is complete and that we should be looking for confirmation, which would be a breakout above neckline resistance:

The measurement to be added to a breakout is determined by the number of Dow Jones points from the neckline down to the reverse head, which is roughly 6200 points. In the event of a breakout above 42900, we would add 6200 points to determine an ultimate pattern target of 49100, which would clearly be in all-time high territory.

Sectors/Industries

Here are two industry groups that are showing marked improvement in recent weeks, in my opinion:

Defense ($DJUSDN):

Defense stocks were struggling as 2024 came to an end. After a quick rebound and price resistance print at roughly 696, defense continued its descent before ultimately reaching a double bottom in February and April. In mid April, the DJUSDN cleared the top between the double bottom lows, which was an initial bullish development and the group has been trending mostly above its rising 20-day EMA ever since. Price action, PPO, and AD line all trending UP.

Defense stocks that currently are on our Strong Earnings ChartList (SECL) include the following, listed in SCTR order (SCTR 80+):

CW 96.9 (RG)
AXON 94.9
KTOS 94.0
DRS 90.9
VSEC 82.7 (RG)

Above stocks with RG in parenthesis also have raised their guidance in the past quarter.

Industrial Machinery:

This was a very weak group heading into 2025, but its AD line did hold up fairly well in 2025, despite its significant price decline in early April. Volume trends are much more bullish now and action in May certainly seems to be the real deal. The recent test of both gap support and the rising 20-day EMA is important. A breakout from here would confirm a solid uptrend in play.

Industrial machinery stocks that currently are on our Strong Earnings ChartList (SECL) include the following, listed in SCTR order (SCTR 80+):

WWD 91.7
ROK 86.3 (RG)

Above stocks with RG in parenthesis also have raised their guidance in the past quarter.

ChartLists and Trading Strategies

In today's Live Trading Room, I pointed out a stock that I was buying - Stride, Inc. (LRN):

LRN:

My strategy is to swing trade it. I have two entries - one was made earlier today at 152.74 and a second entry, should LRN get there, would be at 146.00, just slightly above the 145.00 breakout level at the beginning of May. My average entry would be 149.37. I'm looking for a breakout above 162 that would ultimately measure near 180. That's my target. To the downside, I'll sell if the rising 50-day SMA is lost on a closing basis.

LRN meets my definition of a leading stock in a leading industry group. Buying such stocks on weakness is one of my favorite trading strategies.

Upcoming Earnings

We now have our Upcoming Earnings ChartLists on our website, so be sure to check those out.

Economic Reports

FOMC minutes were released at 2:00pm ET

Happy trading!

Tom