The Fuse
Equity futures are rising this morning, trying to build upon the strong reversal yesterday. After dropping 1.5% the SPX 500 finished higher by more than 1%, a powerful turn that is quite rare. If there is some followthrough today (and it appears to be) then the SPX 500 will make a quick run to the old highs, within days.
Interest Rates are modestly higher this morning as we have a risk on trade starting to develop. The 2 year dropped below 3.6% at one point, really stretching away from the current fed funds futures. Next week is setting the table for a volatile week if the Fed chooses a slower path, which it seems possible.
The huge reversal to the positive side was impressive, and brought about gains overseas. In Europe the Stoxx gained 1.2%, Japan was up a robust 3.4% while Hong Kong gained 1%. Shanghai did not participate and dropped a bit. Gold is pushing towards all-time highs, crude oil up more than 1.5%. Market volatility could collapse if the PPI is taken positively.
Earnings were sparse last night, this morning strong earnings from Signet. Later tonight big database/software name Adobe reports along with retailer RH.
That was some reversal day, and it was very bullish. After a mostly in-line CPI number for August, the sellers came out in droves and pushed markets down hard, eventually filling the gap at 5,409 on the SPX 500. That brought out the buyers and did they ever do a number, the index rising up 150 points from the lows or 3%. The Industrials cleared a nearly 950 point reversal on its own, wiping out a 2% loss with a small gain. Impressive, but will there be followthrough?
Breadth was not great end of day but when you consider how far down it was by midday then you could understand why the resulting number was just so-so. Wednesday should have been a huge down day but the bulls turned it around bigtime and posted a 15-11 gain. We could see an avalanche of buyers come out if they like the PPI number today, and if so a followthrough day that could usher in some big moves. Remember, volatility is still elevated at 17%.
Heavy turnover yesterday, what you like to see on a big reversal day. The damage was done early in the day, heavy sell programs hit with big volume but the market turned gradually as buyers took center stage. The heavy buying that happened late in the day was probably short covering, but no matter – the reversal was impressive and worthy of a chance at followthrough.
Well, the SPX 500 tested that 5,400 level of support and filled a gap just above there, and with a close above 5,550 there is a potential for a new high to be tagged very quickly. Why is that? This was a large reversal on big turnover and a short covering rally to boot. Sellers got out of the way quickly and orderly, buyers got a foothold of the market after midday and never eased up. We could see some spillover from Wednesday. Nasdaq has resistance at 19.3K to 19.5K, through 20K is a bonanza bounce, probably to new all time highs.
The Internals
What’s it mean?
That was some move yesterday! The internals really capture the action after midday, with the VOLD climbing up to session highs end of day, the TICKS were interesting with red early in the day but then the buyers came in droves, picking up stocks left/right. The VIX was pounded, often seen after news releases liek the CPI. Put/calls, which had been on the rise took a leg down, the ADD finished positive after being down all session.
The Dynamite
Economic Data:
- Thursday:Jobless claims, PPI, federal budget
- Friday:Import prices, consumer sentiment
Earnings this week:
- Thursday:BIG, KR, SIG, ADBE, RH/span>
- Friday:N/A
Fed Watch:
No fedspeak this week, the committee is in their quiet period before next week’s crucial meeting. The data this past week still shows the economy is chugging along at a moderate pace, though some metrics in the labor report see chinks in the armor. A few fed speakers during the week stated the committee is ready to commence with a rate cutting policy which in our view will last quite awhile as the FOMC looks to reduce the tight conditions that have existed for a couple of years.
Stocks to Watch
Apple – A big event is scheduled for this week, but recent weakness in the stock means there has been little excitement to buy Apple. Can that sentiment turn around or will this new iPhone introduction (likely) be another excuse to do more selling.
Inflation – In Jackson Hole we heard Chair Powell declare the time had come for rate cuts to start. That of course could start next week, but there are still important inflation reports to consider this week. Will the CPI confirm the Fed’s view that inflation is right near target?
Nasdaq – It was the worst week in a year for stocks, the Nasdaq took the brunt of the punishment. Can it recover or will we see another lower higher, lower low in the weekly chart? The 50 week moving average is not far down from here, about 800 points which can be tagged easily with elevated volatility (currently).
