The Fuse
Equity futures are modestly higher this morning as they try to bounce back from a volatile session Wednesday. Not much on the economic data front to drive stocks in either direction, but volatility remains elevated.
Interest Rates are dropping slightly this morning as the long end of the curve remains under. The 2 year is also down, firmly below 4% as the bond market is trying to push the Fed towards excess rate cuts. Fed funds futures still prediction 4-5 cuts in 2024.
Stocks in Europe were mostly lower, about .8% while crude is mostly unchanged. Gold is up about 10 bucks at this time, Japan fell overnight while the Chinese markets were flat.
Earnings from Robinhood last night were decent, HubSpot also beat downtrodden expectations. This morning Lilly is on the move with a big beat and raise.
With receding volatility there will be some calmness in the markets within a couple of weeks, but for now we can expect some rather violent moves to happen. That yen carry trade unwind was pretty much responsible for the errant action this past Monday, and it is probably complete. Plenty of interesting action to come though.
After a pretty strong session on Tuesday it appeared we might get some followthrough, even as the markets faded late in the day. But it was all for naught as the sellers came out punchy in the afternoon and silenced the roar of the bulls. Folks, this is NOT bull market action and while it could just be a mild correction, money is lost during these times if you’re not being careful. Breadth was poor after being strong most of the day, oscillators are back to a deep oversold condition.
Volume levels were okay early but accelerated late in the day as sell program after sell program hit the markets hard. When high volume prints are experienced with strong price action down it is extremely bearish behavior. Further, when stocks are accelerating into the close on the way down with higher volume there is simply nothing to do but wait or sell.
Will Monday’s low hold? That’s the big question now, without much room to make it down there. A 1.5% loss in the SPX 500 would do it, then we could see if the dip buyers can be engaged. Nasdaq is also crippled, a 2% loss would test that Monday low. The outside day for Nasdaq was quite bearish. On the SPX 500 there is a gap open at 5,064 which could be filled on the next drop down. Not even the Russell 2K can catch a bid, with lower rates that’s trouble.
The Internals
What’s it mean?
With no followthrough to the upside the bulls have a problem, and it may only get worse. Stocks fell hard towards the end of the day. The VOLD just could not stay positive, ADD was bearish too and the VIX started moving higher end of day. Ticks were a sea of red all session long, especially on the Nasdaq. When buyers refuse to step up the sellers come in – hard. Put/calls are still elevated, too. Bearish all over.
The Dynamite
Economic Data:
- Thursday:jobless claims, wholesale inventories
- Friday:n/a
Earnings this week:
- 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.
