Daily Market Report
Wednesday, June 9th, 2021
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- Futures were again higher, yet the S&P 500 is continuing to hit a brick wall at its all-time closing high resistance at 4232.60
- Growth stocks (IWF) are outperforming value stocks (IWD) on the eve of a HUGE inflation report - seems odd if inflation truly is a market worry
- Health care (XLV, +0.98%) and utilities (XLU, +0.63%) are today's leading sectors
- Meanwhile, the 10-year treasury yield ($TNX) is down more than 3 basis points and just below 1.50%, spooking both financials (XLF, -0.89%) and industrials (XLI, -0.88%)
- Technology (XLK, +0.44%), an industry that would suffer during a rise in inflation, hasn't seen a bad day in the last four leading up to tomorrow's May CPI report
- Merck (MRK, +2.21%), Amgen (AMGN, +1.22%), and Johnson & Johnson (JNJ, +1.14%) are the top 3 component stocks in the Dow Jones - all health care names
- Biogen (BIIB, +3.69%) is the leading S&P 500 stock
The worst calendar day of the month for the benchmark S&P 500 is the 19th, very likely due to options expiration. The second-worst day of the month is the 9th (today). The 7th through the 10th tend to be profit taking days in the stock market. Here are the annualized returns for the worst 5 calendar days of the month (since 1950):
- 19th: -33.66%
- 9th: -18.21%
- 22nd: -10.74%
- 7th: -10.33%
- 20th: -8.52%
From the above, you can see the tight grouping from the 19th to the 22nd, with 3 of those 4 calendar days among our worst 5. That's the "monthly options effect", which is why we have a Max Pain webinar each month to identify those stocks that could be the subjects of the market makers' wrath as options expire on the 3rd Friday of the month. This could be on full display this month as inflation reports and the Fed drive stocks in one direction or the other, with
the market makers on the other side likely sending many of those stocks in opposite directions into next Friday's June options expiration. It should be quite a crazy week ahead!
In our June Short Report published a little over a week ago, I indicated that health care tends to outperform the overall market in June. Biotechs typically have their best month in July. Clearly, the summer is kind to this sector. So it should be no surprise that health care is performing well and that biotechs are breaking out:
The XLV is trending higher, though it's a relative underperformer. Still, a breakout in a very aggressive area like biotechs should not be taken lightly. I believe this will help the XLV outperform for at least a short period of time. Keep in mind that 18 of our 42 Short Squeeze ChartList stocks reside in health care, so further spikes in these stocks are a definite possibility as more money rotates into the group.
Our Short Squeeze ChartList (SSCL) is one group of stocks that should not be highly correlated with inflation reports. They have one thing in common - lots of investors/traders do not believe in their stories. When things start to turn against those shorts, the spike can be quite impressive as volume accelerates. Check out these one week returns:
Some of these saw incredible runs that may already over, while others might just be beginning. If you recall back in January, GME more than doubled over a few months from 7 to 14, but that paled in comparison to its eventual surge to 500. I'm not suggesting any of our SSCL stocks will make that type of advance. Rather, I'm just pointing out that these stocks can become extremely irrational - in a good way on the long side - when they get
going. Look at CLOV's one week return of 116%. Is that rational? Of course not.
Here are two other recent surges from our SSCL:
GEO:
GEO is a REIT, while SENS is a medical equipment company. If you recall, I recently mentioned that there are a ton of health care stocks on the SSCL. More than 25% of the list is in the biotech area. One reason the SSCL is performing as well as it is is that the DJUSBT has broken out, which I indicated above in the Sector/Industry Focus section.
One biotech stock on the SSCL that really hasn't participated as much is AXDX. It has begun an uptrend, but volume has remained light, so there's been no short squeeze panic taking place. Perhaps we'll see that begin if AXDX can continue rising to put pressure on shorts to cover:
In January, AXDX made a light volume move higher off a double bottom before the short squeeze kicked in. So maybe we're seeing a repeat of that pattern (blue arrows are used to highlight).
Here are the key earnings reports for the next two days, featuring stocks with market caps of more than $10 billion. I also include a few select 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 you own or are considering owning.
Wednesday, June 9:
BF/B, GME, CPB, RH, VRNT, UNFI, OXM, LOVE, VRA
Thursday, June 10:
CHWY, FCEL, SIG, PLAY
April wholesale inventories: +0.8% (actual) vs. +0.8% (estimate)
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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