The Fuse
Equity futures are rebounding this morning after another drubbing on Thursday. This week has been all about volatility with some big moves down and up.
The seasonal trends are still in place for a couple more weeks and during that time we’ll have some large rebalancings occur from pensions and other funds. This could move markets heavily with large liquidity loads.
Interest Rates are again higher as now the 10 year yield has pushed above the 20 day moving average. Another close above will signify an uptrend is in place as the gap at 4.4% looks to be filled. The 2 year is at 4.22 and threatening to break above 4.25%. Fed funds futures see a near 96% chance of a cut next week, the committee is likely to deliver but there may be some contention at the meeting.
Stocks are up this morning after a drop in the European STOXX. Yesterday the ECB had a rate policy announcement. The dollar is up modestly, gold has broken below 2,700 while crude oil is up nearly 1%. US treasury yields 10 year were down 1bp, German 10 yr bund yields the opposite. In Asia stocks were down. Japan was off 1% while the Hong Kong and Shanghai markets both lost about 2%.
Earnings last night were spectacular from RH and Broadcom, both of those names soaring in the pre-market. Good numbers from Costco but that stock had run up prior.
No followthrough from Wednesday’s strong session though we did notice the internals were rather shaky. That puts this recent up move in jeopardy, and though the ‘talk’ is about seasonal trends being bullish that does not matter much if money flows are not strong and coming to stocks. The bond market has been selling off slowly over the last few days in anticipation of some mildly hawkish talk from the Fed next week. Stocks have not budged too much but may release after the statement is exposed.
Breadth has been the story this month and it really has not been a good one. Once again, very poor breadth as investors/traders unload some of their favorite stocks before year end. We have seen poor breadth attributed to the weak showing in the Russell 2K small caps, and that has leaked over to the rest of the market. Makes sense really, much of the market follows the lead of those small cap names. There is only so much selling until it dries up, we thought was Tuesday but apparently more distribution is happening.
Pretty heavy day of volume to the downside, though much of it hit early in the day and then late in the session. The PPI for November was weak before the open, buyers were standing at the ready to pounce on this market but it was not to be. In fact, volume trends continued to notch a bearish move, that has been the case most of this week and the month of December. Recall that if the bulls cannot eke out a win this month it creates problems for the start of the year.
This week we have seen a slow walk down to support levels, though that 20 day moving average is the ONE we really want to see tested. If timing is right and and the sellers finish their ‘thing’ and the support level holds, then perhaps the markets can swing higher. For now, so little time left in the year to do some selling, only 12 trading days left in 2024 before the ball drops. The faster support holds and sentiment sours a bit the better quality rally we’ll experience.
The Internals
What’s it mean?
More ugliness in the internals as the VOLD and ADD were simply crushed from the start of trading. Price action seems to want to hang in there but breadth is telling us a bearish story. Look at those ticks, a SEA OF RED all session long, the put/call even rose up as did the VIX, simply a bearish day all in all. Can the markets recover? Sure, much like Wednesday’s rally but that PPI number is going to give the Fed some pause next week, even if a rate cut comes.
The Dynamite
Economic Data:
- Friday:Import Prices
Earnings this week:
- 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.
