The Fuse
Stocks are trying to make a valiant recovery today after getting pounded on Monday for the third session in a row. At some point the selling will end but will there be buyers showing up? It appeared overnight we might have that with the ES futures up 80 handles but that was given back. This week will be very telling.
Interest Rates on the long end of the curve are modestly higher this morning as bond buyers take a modest break. The recent elevated volatility has stimulated buying in fixed income, and perhaps the worry of the US economy slipping into a recession (due to weaker jobs data). Fed funds futures are a bit alarming here, looking for 4-5 rate cuts now in 2024, which is far more than the Fed has ever been willing to commit to.
Stocks rebounded in Europe, the Stoxx rose up by .7% while the Nikkei shot higher by 10%, recapturing nearly all the losses from Monday.
China’s markets were mostly flat to slightly higher. Gold is down a bit as is crude, silver down as well. The dollar is up strong, higher by .3% as German bund yields climbed 4 bps.
Earnings this morning from Uber were pretty strong revenues and gross bookings. Caterpillar put up a solid number, Vulcan Materials missed slightly, last night Palantir and CSX beat estimates handily. Tonight we’ll hear from ABNB, Supermicro, Rivian, Wynn, Reddit, Amgen, Upstart and Axon Enterprises.
Japan’s index fell overnight more than 12% as the yen carry trade was unwound. This is a complex trade where investors borrow at lower rates (like the yen which had zero rates forever) to buy stocks in other markets like the US. It works until it doesn’t. The jobs report and subsequent economic data seems to have thrown the markets into a tailspin. We have seen distribution days stack up for weeks
As mentioned yesterday about breadth – red flag! That was the case here Monday as we could call it ‘dark Monday’, with atrocious breadth that was 26-2 negative, a true rout of the bulls. New lows are starting to dominate the field now, and oscillators are super oversold. Yes, a whopper rally is likely to happen but it might take some time, later in the week perhaps. Regardless, the trend is uniquely bearish at this time.
Massive volume as anyone who was long stocks puked them up all day long. Much of the heavy turnover was in the early going but a steady stream of selling volume hit all session long. This could be a washout though with very bearish readings in many of the indicators. On balance volume for the SPY has turned down sharply as has the QQQ. Just very bearish at the moment.
We saw the low on the SPX 500 yesterday tick down to 5114 and that was where buyers stepped in, but they only brought the markets back about halfway. I suppose if you’re a bull that would be considered a win. However, the Nasdaq, down 1100 in the pre-market fared a bit better, though today’s lows are likely to be tested again before any sort of bull trend could be discussed. The 200 ma was penetrated on the QQQ and bounced, the SPY has further down if that level is to be tested. Ultimately the April lows of 4,950 could be tested again. If the December lows are part of the discussion at 4,550 then it becomes very bearish.
The Internals
What’s it mean?
The powerful uptrend has ended and very quickly. Internals were as ugly as could be, the VOLD straight down and finished on its lows, the ADD weak and the ADSPD finished at a trend down day. Ugly all around. Put/calls rose up to finish above 1 again, ticks were super red. Finally, the VIX, which soared to +60 at one point but vol sellers came in as this indicator finished at 38%. Super bearish market right now.
The Dynamite
Economic Data:
- Tuesday:Trade deficit
- Wednesday:Consumer credit
- Thursday:jobless claims, wholesale inventories
- Friday:n/a
Earnings this week:
- Tuesday:UBER, FUBO, CAT, BAX, CELH, RIVN, ABNB, RDDT, DVN, AMGN, UPST, ATI
- Wednesday:SHOP, DIS, CVS, EMR, LYFT, SONY, HOOD, APP, HUBS, OXY, SRPT
- Thursday:LLY, LNG, NVAX, CRON, ELF, U, PARA, TTD, ARAY
- Friday:CGC, NIK, AMC, ALG
Fed Watch:
In what was considered a mildly dovish tone, the Fed’s decision to hold rates steady brought some controversy. Some on the committee had though a cut was the best way to start the process, and many economists thought the same. However, the weaker jobs report still showed gains, and perhaps policy is right until the next meeting in September. Already the markets’ hair is on fire, looking for 5 cuts by the end of the year. It is NOT happening.
Stocks to Watch
VIX – Volatility climbed this week to nearly 30%, a huge surge of fear. We often see that burned off quickly when worry rises up, let’s see if that happens this week.
Bonds – Fixed income had an exceptional week as bond traders flocked for some safety. Yields fell for various reasons, namely a worry the soft landing may turn into a hard landing with a recession on the table.
Nasdaq – Falling hard this past week, the tech-heavy Nasdaq is looking to recover some lost ground. With the VXN (volatility) very high and surging still we will see wide ranges, which means both big ups and downs. At this point some basing would be needed.
