The Fuse
Equity futures are powering higher again today after the reversals over the last couple of sessions. With a strong move up towards 4,400 on the SPX 500 there could be more upside.
Interest Rates are modestly lower today after a rally in bond ETF’s the prior session. Monday the bond market was closed for a holiday but following the attacks in Israel the safety trade was on.
The bombing in Israel was taken seriously by the markets yesterday but the bulls stepped up and rallied strongly. As we enter a big earnings season, this is the time to let up a bit on the bearishness.
Solid earnings from Pepsi this am and raised guidance, too.
After the news of bombings in the Middle East, stocks fell on the open but rallied hard to close the day near the highs of the session. It was an impressive move, not unlike the turnaround from last Friday. These are ‘bottoming’ quality rallies, but we won’t yet call it.
Strong breadth for a second straight session and perhaps a new buy signal renews. However, we would like to see this expand to more sectors and days, energy really carried the indices. However, technology did kick into gear later in the day with strong performances for the second straight day. We are cautiously optimistic here.
A followthrough day on lower turnover, so not accumulation yet. If there is a strong response to the inflation reports this week with bullish action then we could justify buying more long positions, but for now the range is wide and the action is treacherous.
We often see markets in downtrends test the charts, and the most common one is the 20 day moving average. That currently lies around 4350 and is falling fast, so that could be tagged today or tomorrow. At that point, we could be short term overbought on the SPX 500, and perhaps a chance to create a higher low on the chart would be a first step to recovery.
The Internals
What’s it mean?
Another positive day for the internals, the VOLD finished strong as did the ADD. We also saw the put/call come down a bit as did the VIX from a high level, ticks were mostly positive today as buyers came in strong most of the session. Bonds will be trading tomorrow..
The Dynamite
Economic Data:
- Tuesday: Small Business Optimism Index, Wholesale Inventories
- Wednesday: FOMC minutes, PPI, Treasury Budget
- Thursday: CPI, Jobless Claims, WASDE report
- Friday: Import/Export Prices, Michigan Sentiment Index
Earnings this week:
- Tuesday: PEP
- Wednesday:
- Thursday: DAL, DPZ, FAST, WBA, INFY, SGH
- Friday: JPM, UNH, PGR, WFC, BLK, PNC, C
Fed Watch:
There were a slew of Fed speakers last week talking up monetary policy, but really nothing changed. Loretta Mester from Cleveland led the charge of higher for longer, and the committee seems head-strong to get inflation down to its 2% target, likely by the end of 2025. If that’s the case, rates will be coming down but for now we’ll have to live with higher rates, the punishment for high inflation. That said, the jobs report Friday was very strong on the headline and wages moved slightly lower.
Issues/Stocks to Watch this Week
Financials – Banks are in the spotlight this week, at least a few of them as we see how recent slowing in the economy and higher interest rates affect investment, loans and income. Friday is the day.
Inflation – Two big readings on inflation this week are the CPI and PPI, but other data will be scrutinized as well. The August headline saw an annualized rate of 7.2%, which is clearly in the wrong direction. Stocks took it in stride.
Internals – The indicators have been weak for about two months as the stock market glides through a corrective phase. But improvement on a Friday is not common, so with an oversold condition at hand we could see a more substantial rally develop towards resistance.
