The Fuse
Equity futures are bouncing back this morning after getting pasted on Thursday. Traders are awaiting the March employment report amid worries a strong number will force the Fed to continue with ‘higher for longer’.
Interest Rates are rising a bit this morning after falling a bit Wednesday in a safety trade. Fed futures have backed off significantly of late, long term rates have risen up as well as the bond market is starting to give up on the Fed’s promise of rate cuts.
Shocking reversal on heavy volume yesterday has the bulls running with a bit of caution. Crude oil remains strong as does gold, the Fed remains adamant about fighting inflationary trends which have started to heat up. Further, geo-political issues are coming to the fore and that means uncertainty, which the market responds to that by selling, buying insurance and an increase in volatility.
Nothing much to report on earnings, the banks kick off earnings season next week.
A massive reversal that took down the markets after midday was brewing from the start. With the internals (our webinar on 4/4 explained it) weaker and not participating in the strong price action things were bound to get dicey. It took a few news items to get the ball rolling and a 2% move from top to bottom was a quite an experience! April is off to a poor start which is somewhat unusual but there is plenty of time to rehabilitate the trend, if it is to continue.
Breadth was pretty negative at the end of the day but was actually strong before the markets started to break down. What has been the pattern of late after gaps higher is breadth coming in with the market, fill the gap and go right back up. That did not happen as dip buyers decided to sit this one out. Breadth indicators have moved to a sell signal, oscillators are bearish as well.
DIA and QQQ really had heavy distribution days on Wednesday, the Industrials now having lost about 1000 points in a bit more than a week. The SPY and IWM also notched distribution days, much of the volume concentrated in the last three hours of the day. The markets need to be monitored carefully here, if there is followthrough to the downside it sets up for some very negative action and much lower tests of support.
With the SPX 500 trying to cling to the 5,200 area late in the day the selling became overwhelming and pushed the markets below that support level. Of course, with lower volatility and interest from dip buyers we could see a rally back up, but let’s not expect it to happen. After all, the SPX 500 was up an astounding 10% in Q1. After losing 5,200 we have 5,100 and then 5,050 as next levels of support, and below there the market becomes very bearish.
The Internals
What’s it mean?
That was quite the smackdown after midday as the internals really fell apart. Just look at the VOLD, high volume selling and the collapse that followed in the ADD. TICKS were heavy red in the afternoon, put/call even started to race higher as the VIX spiked up to reach 16%. If recent history is a guide the 18 level might be worthy of a market buy, but we need to see how things go. If the markets struggle the next couple of sessions and the internals remain poor then lower levels will be challenged.
The Dynamite
Economic Data:
- Friday:March Employment Report, Consumer Credit
Earnings this week:
- Friday:GBX
Fed Watch:
Chair Powell with some comments last week basically reiterated what he said the prior week, and that is the data will tell the committee how to proceed. To be sure, the PCE data released on Friday was in line and rather friendly, as it met the committee’s expectations. They are wanting to see more data though and that requires a couple more months. The higher rates on the short end have been working.
Stocks to Watch
Volatility – The VIX often pulls down in front of a long weekend and rebounds after traders return. We’ll see if that pattern holds.
Equity Futures – No response Friday following Chair Powell’s comments and the PCE inflation data, but we’ll see how it goes early in the week.
Apple – Remains an enigma, plenty of news around this name but we often see buyers come to the rescue in times of distress, like now. A big tell on the market.
