The Fuse
Equity futures are down across the board in a continuation of Tuesday’s heavy selling. However, the futures are well off their lows, perhaps prices tagged a level of interest where buyers were ready to step in. Another down session would put the lower end of a wide range (5860-6100) in jeopardy, as there is plenty of space down for the markets to probe.
Interest Rates are up a bit this morning one more time, the bond market still worried about sticky inflation staying in the economy.
Fixed income investors have been staying away from bonds for weeks now, we’ll have a reading on inflation next week and this Friday with wages from the December payroll report.
Stocks in Europe were higher by .1%, the dollar up slightly as well. Crude oil is still on the move, higher by .5% while gold remains well bid (along with silver). German 10 yr bund yields and US treasury 10 yr yields remained steady, in Asia stocks were mixed with Japan shedding .3% and Hong Kong down .9%, Shanghai was flat.
Earnings are sparse this week but we’ll hear from JEF, Delta, Constellation Brands, KB. Home and Walgreens later in the week.
As we mentioned yesterday the action Monday was not all that impressive. In fact, closing in the lower half of the range was a bit of a ‘tell’ as to how the action could go yesterday. As it stood, markets were vulnerable to downside again as rates continue to rise. The 10 yr is near 4.7% and might make a run to 5% before too long.
Back to poor breadth again. This has been a problem for several weeks and there appears to be no solution. Is it asking too much fro a few days in a row of positive breadth? Monday’s strong oscillator reading has now turned negative, another one would cement the trend lower. The recent lows at 5860 are likely to be violated and if so a storm of selling may hit.
Volume was up on the SPY and QQQ, so another distribution day. These have been sporadic but there is certainly a pattern here that is bearish. We have certainly had our share of selling in December which is now continuing into January. Some events on the horizon might trigger some to hit the sell button more frequently, if earnings fail to deliver and then there is a new Administration getting started. Also, options expiration next week is a big one, when we’ll se many LEAPS expire..
The SPX 500 still has good support around the 5860-70 level, where buyers stepped up last week to help turn the tide. The chart shows a pretty wide range of trading at this time, hence higher volatility as the market traverses up and down. The Nasdaq and Russell 2K also sport this wide range, which may stay with us until there are multiple days in one direction or the other.
The Internals
What’s it mean?
As mentioned yesterday morning the internals from Monday’s session were not impressive, and we saw how vulnerable the market was from the start of Tuesday’s trading. It seems sensitive enough to fall over with a brush of wind. VOLD again miserable but so was ADD, put/call is rising again. The VIX of cours was the star of the day, which the bulls loathe. Ticks were mostly red, several sell programs all session long. A tough day for the bulls, Monday’s gains just disappeared.
The Dynamite
Economic Data:
- Wednesday:ADP, Fed meeting minutes, consumer credit
- Thursday:jobless claims, wholesale inventories
- Friday:Consumer sentiment, December payroll report
Earnings this week:
- Wednesday:ACI, HELE, MSCI, JEF
- Thursday:STZ, WBA, KBH, PSMT, WDFC
- Friday:DAL
Fed Watch:
Not much fed speak scheduled this week but some members came out last week and talked down monetary policy. It seems they all really want to pause at this point, at least for a few meetings, making it very transparent of their path. The market may not like it but that does not matter. The meeting minutes released this week will be interesting. Richmond Fed President Barkin speaks again Tuesday.
Stocks to Watch
Volatility – Stocks have been on a rollercoaster ride for a month, will that volatile action smooth out a bit? With earnings season coming up it could be a bumpy ride until then.
Jobs – Markets are expecting a fairly strong jobs report for December (155K), and if that happens with little inflation the Fed will continue to be cautious and may pause at this month’s meeting.
Bonds – Fixed income continues to move lower as yields press ahead. There is no need to add bonds here if inflation remains sticky, which is what the data and the Fed have been telling us.
