The Fuse
Equity futures are lower this morning, continuing the selling that started on Thursday and caused some worries to suddenly arise. With an overbought market corrections and pullbacks can happen at anytime, nobody rings a bell at the top. A modest pullback to the 20 day moving average and bounce from there might be enough to get the bulls re-engaged.
Interest Rates are a tiny bit lower across the curve as bondholders are desperate to get a bid in the market. Yields remain elevated and for good reason, inflation remains sticky, as we saw in this week’s inflation readings. Fed funds futures have backed away some with a lesser chance of an aggressive rate hike cycle. Chair Powell yesterday stated the fact that the economy is not giving the committee any reason to be hasty.
Stocks are looking to open sharply lower, following the lead from overseas. In Europe the Stoxx was down about .8% on heavier volume, a corrective move may be underway. Gold is about flat, crude oil slightly lower. German 10 yr bund yields rose up by 2 bps, the US treasury 10 year yield up 4bps. Stocks in Asia were mixed, Japan higher by .3%, Hong Kong flat but Shanghai down 2%.
Earnings last night from Applied Materials were a bust. Revenue missed but earnings were strong, guidance was poor. This morning a beat by Alibaba and raised guidance driven by AI.
The bulls finally gave in, but they did not give up without a fight. After several strong days and some ‘weird’ reversals the stock market went down sharply and stayed down at the end of the day. All is not lost though, the indices closed just off their all-time highs, time for a bit of sideways movement, back n’ fill before the bull run should continue. The rest of the year looks quite favorable.
Breadth started out rather strong but petered out towards the end of the session. Another negative day of breadth leaves this indicator firmly in bearish territory. New highs though continue to lead the lows, and keeps that indicator on a buy. Oscillators are back negative as one would expect, the MCO now showing negative readings for Nasdaq and NYSE. A couple more down days should suffice and scare people enough to find a bottom. The poor breadth has been tipping the Fed’s hand for several days.
We saw better turnover on the SPY but it was a positive day, barely. Other indices had lower turnover, thankfully for IWM and QQQ, which would have notched distribution days if volume was higher. As it is, these indices have been under a great deal of pressure, and more volume to the downside will ignite a slew of more selling, should the dip buyers depart for the time being.
A pretty negative session from the start as the high was made near the open, just no buyers to be seen at all. Perhaps we can now get a test of the 20 moving average, the SPX 500 comes in at 5,860 while the Industrials comes in at 42,900, a good 2% lower. That might be enough to scare people, given the fact we have not seen much of a decent pullback, a large one might be believable.
The Internals
What’s it mean?
Not really much momentum to the upside the last few days. Just look at the collection of pathetic readings on the internals. Not only is volatility nascent, but every rally is being used to sell. Yesterday was a different situation in one of the internals, the put/call rallied sharply and finished at levels not seen since September. A sign of things to come? We’ll have to see, but certainly the put/call ticked up during/after Chair Powell’s interview. Ticks were mostly red.
The Dynamite
Economic Data:
- Friday:Import prices, Empire State Manufacturing, Retails sales, industrial production, cap utilization, NYF President John Williams
Earnings this week:
- Friday:BABA, BKE, FL
Fed Watch:
The committee delivered a big rate cut last week, and now the market is focused on December. The futures market sees a strong possibility of this happening, but the data is going to need to come in as hoped for. This is a huge week for Fed speakers, and Chair Powell will be heard as well along with some other important names. Interesting they are all coming up with some important inflation data.
Stocks to Watch
Nasdaq – New highs for this index as it is now taking taking the lead. Remember in 2023 this index was up 53%. That is not likely achievable again but having the power to bring the other markets up is a huge advantage.
Tesla – After the election results, Elon Musk’s company really stepped on the gas and moved higher. The all-time highs are about 30% away but this stock has incredible momentum and could certainly make a run there before year end.
Inflation – With CPI and PPI readings due out this week, the expectations are for the core to continue dropping. The Fed has made great progress in bringing down prices but more work is needed. Policy is still restrictive, but with better inflation numbers the committee will bring rates down faster.
