The Fuse
ES futures are down modestly but much like yesterday’s huge reversal we could see that happen again. NVIDIA led the parade on Thursday but that event is over and now we have a short week coming up, where we often see volatility recede (markets higher). The SPX 500 is less than 1% away from 6K again.
Interest Rates are moving up slightly this morning which may help put a bid under the equity markets later on if that continues. Certainly small caps would appreciate a new trend of lower interest rates. The saber rattling continues about monetary policy, some of the hawkish Fed members stated the committee is more likely to slow it down if inflation starts heating up again.
While we wait on the opening bell the futures have slipped from higher levels on some volume in the futures. Stoxx in Europe climbed .6% on good turnover, France and Germany about the same gains. The dollar was flat, crude oil is down about .8% while gold is back above 2,700 per ounce. German bund yields (10 yr) declined 5bps while US treasury yields dropped 2bps. Stocks in Asia were mixed, Japan up .7% but China stocks fell sharply, Hong Kong down 1.9% and Shanghai down 3.1%.
Earnings last night were lights out fantastic for Elastic and discount retailer Ross Stores. These two names are ripping higher as is The Gap, which guided up and said the holiday shopping season is off to a strong start. Intuit is down a bit on soft guidance.
Once again, the pre-market moves fooled everyone. Before the open the futures dropped hard and it appeared what ‘good will’ had been built the last couple of sessions would be removed altogether. But this market is resilient, and to be honest the bulls have some life. Today’s finish was strong but did not close near the highs of the session, yet with participation from the small caps there is some hope this rally can continue on into next week’s shortened trading week.
Finally some strong breadth numbers! Stocks came out strong after the open, the breadth assisted by a very solid small cap rally, the IWM rallied better than 1.5% on volume. That is impressive, the oscillators moved back up sharply and are hovering near the zero line. A couple more days of rally and this oscillator will be on a buy signal. New highs crushed new lows once again, this remains on a bullish signal.
Some really good accumulation yesterday, the DIA and IWM both with very strong volume sessions, much better than the prior few days. That is meaningful when we have had such poor turnover since the post-election trading session. Remember, good price action when the volume is heavy is a good sign for the bulls and indicates good, strong momentum buyers stepping in.
Recent moves lower may have been enough for the bulls on the sidelines to start participating again. With the recent pullback in the IWM that was what the bulls were looking for, and then today’s surge on strong volume. We’ll call out the 20 day moving average as major support levels on the IWM, DIA and QQQ along with the SPY. We could pullback to that level in a few days but let’s see if the bulls can run a bit longer.
The Internals
What’s it mean?
That’s more like it! Good internals across the board, though we are still waiting for a bigger collapse in the VIX. Good, solid action in ticks, plenty of green. The ADSPD shows a trend up day yesterday, and finally the ADD participated with some good stats. VOLD also with a strong performance, let’s see if there is followthrough today.
The Dynamite
Economic Data:
- Friday:SPX services flash PMI, flash manufacturing PMI, consumer sentiment
Earnings this week:
- Friday:GB
Fed Watch:
If last week’s subdued response by Chair Powell about future rate cuts did not sway you, then I’m sure the move in Fed Funds Futures probably did. The excitement over rate cuts has quieted down a bit from a month ago. The futures market may now only be pricing in 2-3 cuts in 2025, and only a 62% chance for a cut in December. That number is getting smaller, and if there is some good strength in the November jobs report that may end up going to zero. Powell certainly delivered a message.
Stocks to Watch
NVIDIA – The big chip company reports earnings on Wednesday, it will no doubt be a market mover.
Tesla – Elon Musk’s company has ripped higher since the election and continues to move ahead, nearing new highs. The consensus is the election of Trump will be favorable to Elon and his EV company.
Interest Rates – Yields on the long end of the curve have been on the rise since the Fed’s first rate cut decision in September. 4.5% seems to be the level that traders are looking at on the 10 year, we’ll see if that gets penetrated soon.
