The Fuse
Equity futures are mixed this morning after a very strong week that has taken the SPX 500 and Industrials right to the edge of all-time high territory. With already good followthrough we could see stocks continue with an upward trajectory into the end of the month. Caution though as volatility will pick up with the Fed policy decision.
Interest Rates are again moving downward as short covering from bonds continues. Fixed income traders are looking to buy here before the Fed meeting but we suspect there won’t be too much movement before Wednesday’s policy decision. Fed futures are aggressively pricing in several rate cuts before the end of 2024.
Stocks in Europe fell slightly overnight while the Hang Seng gained a modest amount. Japan and Shanghai were closed. Gold is slightly down after a first time close above 2,600 per ounce, crude oil is trying to make its way back above $70 per barrel. Natural gas in Europe down 2.3%.
Earnings calendar is light this week but a few big names are out like General Mills, FedEx and Lennar later in the week.
All eyes are on the Fed this week as they are expected to pivot monetary policy from restrictive to loose. The committee may cut 25bps or possibly 50bps (highly unlikely) Wednesday for the first rate cut since 2020. The pandemic spurred a furious move by the Fed to curtail an economy spinning out of control. With tighter conditions the Fed as reined in inflation and now is trying to engineer the ever-elusive soft landing.
Breadth was lights out fantastic as this indicator is now strongly in the bull camp. Heavy volume as the stock market rises is a positive for even higher prices. We noticed good strong turnover and a huge reversal of fortune Wednesday as the breadth turned from heavily bearish to bullish. A powerful turn.
Volume trends are now bullish after that reversal Wednesday and followthrough days on good turnover. We don’t expect to see much heavy volume until the Fed decision hits mid afternoon on Wednesday. Very strong bullish trends lead to more upside.
Support levels were tested this and came out successful. Given the plunge Wednesday to near 5,400 on the SPX 500 there is little doubt the support is strong. There is plenty of room for the index to move higher, and the Industrials are also close to all-time highs as well. IWM is moving along within a range but a break above $225 and confirmed with another close above there would put this index in a new high position very soon.
The Internals
What’s it mean?
Terrific day and week for the bulls after the prior week’s bearish action. Notice the strength in the VOLD all week long, three sessions the indicator finished on highs of the day. That is impressive, the PUT/CALL ratio headed lower on Friday and is on a buy signal. VIX also went south, this indicator also on a buy signal as well and breadth was tremendous. Ticks were in favor of the bulls too, with heavy buy programs all session long.
The Dynamite
Economic Data:
- Monday:Empire State Manufacturing
- Tuesday:Retail Sales, Industrial Production, Cap Utilization, Biz Inventories, Home Builder Confidence Index
- Wednesday:Housing Starts, Building Permits, FOMC interest rate decision, Chair Powell Press Conference
- Thursday:Jobless Claims, Philly Fed manufacturing, existing home sales, leading economic indicators
- Friday:N/A
Earnings this week:
- Monday:RF
- Tuesday:APOG, FERG
- Wednesday:GIS,SCS
- Thursday:DRI, CBRL, FDS, FDX, LEN, MLKN, SCHL
- Friday:N/A
Fed Watch:
It’s time for the Fed meeting this week, and all bets are on that we will see the first rate cut in four years since dropping the rate to zero to counter the aftermath of the covid pandemic. With supply chain issues and a flood of money in the system it was difficult to fight off inflation trends, but they are winning now and see a clear path towards a soft landing. The market is ahead of the Fed though and that could mean a sell on the news if they are not given what is expected.
Stocks/Issues to Watch
Federal Reserve – It is widely expected the Fed meeting will conclude embarking on a new and dovish interest rate policy. After nearly 15 months of extreme tight policy it seems the Fed is ready to loosen, but not as aggressively many would believe. Let’s watch the fed futures respond.
Options – A big expiration and rollover is upon us this week. We often see quite a bit of movement with futures and volatility during this triple witching time, let’s see if there is some opportunity to trade it.