The Fuse
Stocks are rallying early this morning following a rough start to the week. The SPX 500 is down roughly 1% on the week but could see a turn higher today and into a big options expiration day on Friday.
Interest Rates are falling as bond buyers are back in the game. Recent worries about rates on the rise are tempered for now, the 10 year yield hitting 4.1% at one point has backed off that level. The 2 year remains elevated at 4.8% and will likely be more influential towards Fed policy than the long end of the curve.
Apple with a big upgrade from BAC while Netflix also received a lift. Stocks in Europe were higher after retreating about 2% earlier this week, China gained 1.4% overnight and are helping to push US futures higher. Boeing is higher following a large order for its troubled 737 MAX Jet.
Can’t really say strong earnings from TSM overnight but they did beat watered down expectations. Year over year down 19% but they did sport a good outlook. Bank earnings were okay but their stocks have been punished for mediocre results. Later today PPG reports along with some regional banks, SLB and Travelers tomorrow morning.
It’s a short week of trading as Monday markets were closed for holiday. However, a big expiration week is upon us as LEAPS will expire this coming Friday on the close.
The bulls were beaten up again but we are approaching a very oversold market condition, which means sharp rallies can be asserted at anytime. Clearly the bears are in control right now and that means trouble. New lows are starting to rise too, and if that persists this long signal will suddenly turn bearish.
More distribution on Wednesday as the bears were knocking all day long. Heavy volume early and midday characterized the entire session, it has been a long week already for the bulls. We are still in a seasonally weak period and now midway. through a pretty tight range. Buyers remain absent save for the short covering rallies that appear during the day.
We remain trapped within a trading range, the SPX 500 between 4800 and 4600. That will persist a bit longer unless the VIX really gets a big pop. It’s been awhile since we saw a big rise in volatility, but that seems to be what may occur if the 4600 level breaks. Earnings season is here and may provide some relief.
What’s it mean?
Once again, another poor showing by the internals led the markets spiraling downward. The VOLD was horrendous while ticks were flush with red all day. Look at the put/call though, rising above 1. That is often a buy signal but would only be after a few days of more fear. VIX climbed as well, this is not good action for the bulls.
The Dynamite
Economic Data:
- Thursday: Jobless claims, housing starts, crude inventories
- Friday: Existing home sales, Michigan consumer sentiment
Earnings this week:
- Thursday: AAL, FAST, TSM, JBHT, PPG
- Friday: ALLY, CMA, STT
Fed Watch:
Some outspoken Fed speakers were out last week preaching the gospel. The biggest message sent was their belief markets are being to aggressive with expected rate cuts, how many and how soon. The latter is of course based on the data while the former is also based on the data and how a reduction in inflation happens to coincide with a slowing economy.
Stocks to Watch
Financials – Friday was a hint of how bank earnings may hit this season: missing on the top line and beating on the bottom line. Plenty to digest this coming week.
Volatility – We’ll again be watching the VIX as it moved down below 13% once again this past week. That sort of complacency is often paid back following a holiday-shortened weekend.
Gold – The yellow metal had a strong Friday after some turmoil arose in the Red Sea area. We often see gold rising when such issues occur, and the metal is within spitting distance of new all time highs.