The Fuse
A strong bid this morning in the market as traders try to shake off a three day losing streak. During the last part of the week the SPX 500 lost nearly 160 points or 2.8% on pretty good turnover. We’ll have to see if this is anything more than a pullback but the 20 day moving average was penetrated, first time in seven weeks. The condition can be rehabilitated though if the moving average is re-captured today and close above it one more time on Tuesday.
Interest Rates are dropping early today as bond traders pick up some bargains from last week’s selling. A Fed meeting is coming up on July 30/31 where the committee is unlikely to move policy. It’ll be a a year since the last rate hike. Fed futures still see about 2 1/2 rate cuts in 2024.
Big news over the weekend as President Joe Biden declared he will not be running for re-election, opening. the door for VP Kamala Harris to be the Democratic nominee. It is too early to say how much this will affect markets but it certainly was a surprise in terms of timing. Stocks in Europe were strong overnight, the STOXX gaining .6%. Crude oil is down slightly, gold up about .3%. Stocks in Asia were mixed, Japan down 1.2% extending its recent decline while Hong Kong was up 1.3% and Shanghai lower.
Earnings will be out this am from Verizon, later today we’ll hear from Nucor, Cliffs, NXPI, SAP and Cadence to name a few. Tomorrow morning is a big earnings delivery with Spotify, UPS, GM, Coke and Comcast.
Not much to worry about, right? Election stuff is still up in the air while there is little debate the economy is slowing down. We don’t have much to think about other than a big earnings season, companies are on display this week in a big way.
Is it just sector rotation or something more troublesome? Breadth was so strong leading into Wednesday and with volume breadth indicator making new highs, but all of that deflated during the last part of the week. Oscillators, which were extremely bullish are now back near to zero line. Another down session and this indicator will be bearish. New highs have started to shrink.
Turnover was brisk as would be expected on a big options expiration day. The dominant turnover was selling though, and that sets up yet another distribution day. We have seen a collection of these over the past couple of weeks, sending a red flag up for the markets if this should continue.
The SPX 500 fell right through support and the 20 day moving average, too. We still have lower levels should the selling continue, 5409 is the 50 day moving average while 5,272 is the 100 day moving average. High volatility tells us ranges are expanding. The Nasdaq has support at 19.3K and gap support at 18.6K.
The Internals
What’s it mean?
The internals were not very impressive for a third straight session. The VOLD leading the way, lethargic action while the ADD was down. Ticks were pretty red all session long, lots of sell programs. Put/call rose again and has for the previous few sessions. VIX is also on the climb and is at levels not seen since April. This being a seasonally weak time of year, stocks are going to need some good guidance to move upward.
The Dynamite
Economic Data:
- Monday:
- Tuesday:S&P flash services PMI, manufacturing PMI
- Wednesday:new home sales
- Thursday:jobless claims, GDP first look, Durable Goods, inventories
- Friday:PCE, consumer sentiment
Earnings this week:
- Monday:SAP, CCK, NUE, NXPI
- Tuesday:ACI, HCA, LMT, PCAR, PHM, DGX, UPS, TSLA, V, GOOGL
- Wednesday:T, SLAB, IBM, KLAC, NOW, URI, WM, F,LVS, WHR,CMG
- Thursday:CMCSA, DOV, DOW, HON, KBP, LAZ, MAS, NOC, POOL, STM, DECK, HEES, JNPR, RKU TEX
- Friday:MMM, CL, SXT, CHTR, CNT
Fed Watch:
No Fed speakers this week as the committee is in their quiet period before next week’s meeting. The data seems to be playing out in their favor albeit a bit slow. That’s fine, the Fed Funds remains high and restrictive just in case inflation starts to rise again. Chair Powell did recently say he believed the next move on rates would be a cut but was short of applying a time, as is usually the case.
Stocks to Watch
Small Caps – What a move for the small caps over the past couple weeks. Amazing price action, strong volume and very positive breadth have stoked a massive catch up. Will it continue towards the end of the month?
Technology stocks – This group has been hammered recently as some of the froth has been removed. Further, the uncertainty over how a new administration would create policy is also a question mark that leads investors to be more cautious. If you have a huge gain in something like NVIDIA, you take some off before any ‘black swan’ bad news becomes known.
Inflation – The PCE will be released on Friday morning, a favored indicator of the Fed for monetary policy. The trend has been lower for inflation, will it continue?
