The Fuse
Equity futures are backing away this morning following a strong surge of buying Wednesday. The PPI for November will be released today and the consensus is for a bit of a rise in these numbers. Yesterday’s CPI was in line but taken in stride, Fed futures improved toward a cut next week. Not seeing a bid just yet in this market, so play it defensively.
Interest Rates are on the rise this morning as traders brace for another report on inflation. The CPI took the air out of bond traders again as they shed positions looking for equities, which rallied sharply. Fed futures are literally locked in a rate cut for next week, a 95% probability after the latest inflation readings. That might change slightly after the PPI number is released.
Stocks in Europe were up slightly overnight, gold is backing away but is still well over 2,700 per ounce. The greenback was down modestly, crude oil up a small amount. The German 10 yr bund and US treasury rose by 1bp, stocks in Asia were higher with Japan up by 1.2% while Hong Kong matched that gain, Shanghai up .8%.
Earnings last night from Adobe were good but their guidance was ugly, just with a down revenue number expected. This company continues to disappoint on all fronts. Tonight we’ll hear from Broadcom, Costco, and RH.
Two down days was enough for the dip buyers to step in and take advantage of lower prices. The early part of the week had some heavy selling and without any bid there was little anyone could do but wait. So, if you did that you were rewarded big time yesterday, though the breadth was still nothing to write home about. This is the problem during the seasonal period when volatility is low, there is just no interest in heavy buying (even if sellers are not too active, either).
As just mentioned market breadth was simply meh. This indicator has been waffling for awhile, and remember earlier this week the internals were flashing a red sign. Oscillators are still negative too, it seems news like CPI were not enough to show a landslide of buying. Perhaps that will come later in the month but for now stock market is very complacent and not worried about a thing. We know how that pervasive attitude usually ends (not well).
No distribution on the day but the Industrials were weak all session long. Nasdaq was the star of the day with a rip your face off rally of nearly 2% on heavy turnover. The IWM barely closed green and well off its highs of the day, the SPY was higher but did not have an accumulation day, which makes it vulnerable to downside any day now.
Only two days of pullback to some short term support is all we’re going to get this time around. Recent tests though of 20 ma by the IWM and DIA seem to have been successful, the pattern in the candles from the SPY and Nasdaq 100 (QQQ) is a bullish morningstar, but we would look for confirmation today or tomorrow with a higher high and higher low in the chart.
The Internals
What’s it mean?
Another mixed session for the internals as the VOLD and ADD were not impressed by the in line CPI numbers. Put/calls jumped a bit, something we need to be aware of if it persists. Ticks were spread out with green and red across the board, the VIX tanked hard after the CPI and we could see the same today later with the release of the November PPI.
The Dynamite
Economic Data:
- Thursday:PPI, jobless claims
- Friday:Import Prices
Earnings this week:
- Thursday:CIEN, LQDT, AVGO, COST, RH
- Friday:N/A
Fed Watch:
Fed speakers are quiet this week as they prepare for next week’s meeting. This past week a Dealbook interview with Chair Powell revealed his hesitancy for being aggressive in cutting rates. The committee likely shares this sentiment too, but more data this week will help determine the path forward.
Stocks to Watch
Amazon – This stock was strong last week after their AWS event. We’ll see if they continue to make new highs, the shopping season is here at it usually means Amazon is on top of its game.
Inflation – With the November CPI/PPI this week, it’ll be important to analyze the numbers to see if inflation remains sticky or is actually falling.
The committee is more likely to favor a pause even if they do cut rates in a week.
Bitcoin – The crypto hit a milestone last week, tagging 100K for the first time. The momentum and liquidity is ver strong with Bitcoin and could lead to much higher prices in the short term, perhaps up to 125K.
