The Fuse
Equity futures are sharply lower this morning, reversing yesterday’s strong price action. Though the internals were not supporting the rally on Monday (see below), price was impressive but was likely driven by Friday’s option expiration spillover.
Interest Rates are higher this morning as nagging inflation across the globe continues to pressure bonds.
China’s economy is in trouble, this morning the country cut rates after releasing poor GDP numbers. Apparently a large wealth manager is in trouble, and the housing problems are well-known. NVIDIA pushed higher Monday amid a slew of buyers coming into the stock in Q2. US Steel apparently received two bids to buy the old steel company. European markets have sold off sharply, down more than 1%.
Strong earnings from Home Depot this morning but sales were down, the company reaffirmed guidance for 2023. We’ll have Target, TJX, JD in the am and CAVA later today reporting as a public company for the first time ever.
It’s a quiet week again but could see some volatile action. Tuesday brings the last day of trading for the August VIX future, while Friday is a big options expiration day for equities.
Breadth was weak all session long but it appears the exhaustion from the early August selling may be over. If there is a positive breadth day here we could see a turn higher. It’s not often you see strong price action with weak breadth, but we are in a tough market environment with higher volatility.
Turnover was extremely low on the day. When markets are higher and volume is low it’s generally not bullish, but if there is followthrough today then we could claim the market is climbing the wall of worry, and that would be bullish.
The SPX 500 is making another run at 4,500 while the Nasdaq tries to defend 12K. With some extreme sentiment readings in the short term we are not surprised to see markets rally some here, but frankly we would like to see more turnover. The move above the 50 ma for Nasdaq was important, while the SPX 500 skirted that level for the fourth time in four months.
The Internals
What’s it mean?
The internals and the price action really told a different story. The price action is often explained by the internals, but yesterday was a different story. The VOLD was awful, put/calls were on the rise and the ADD was bearish as all get out. Yet, volatility sank and pushed lower as we approach a roll day tomorrow (vix futures expire), and we have options expiring on Friday. We could see a burst of volatility later in the week.
The Dynamite
Economic Data:
- Tuesday: Retail Sales, Import/export Data, Empire State Index, Biz Inventories
- Wednesday: Housing Starts, Industrial Production/Capacity Utilization
- Thursday: Jobless Claims, Philly Fed Index, Leading Indicators
- Friday: Eurozone CPI, Japan CPI
Earnings this week:
- Tuesday: CAH, HD, A, COHR
- Wednesday: EAT, TGT, TJX, WOLF, CSCO
- Thursday: LITE, TPR, WMT, AMAT, FTCH, ROST
- Friday: BKE, DE, EL
Fed Watch:
Fed speakers last week cautioned about the committee being too complacent about sticky inflation. Yet, the inflation data actually presented some positives that the Fed can work with. We’ll be listening carefully to any comments by committee members and the FOMC meeting minutes released on Wednesday.
Stocks to Watch
Options – A big options expiration this week with a slew of equity options expiring Friday, always volatile.
Retail – Huge week for retail stocks as the ‘big names’ will deliver their earnings releases, along with retail sales Tuesday morning.
Nasdaq – This index has now fallen below the 50 day ma for the first time since early March, when the Nasdaq went on a monster run higher. Let’s see if the Nasdaq repeats the pattern.
