The Fuse
You can stretch a rubberband only so far before it snaps. Such may be the case with the markets today, as it appears a risk on day could be on the table. We’ll have December PPI figures to deal with but even if hot there is a nice bid in the markets today. We’ll see how it plays out.
Interest Rates are on the move but not falling today, that could be a problem if bond sellers continue to do their selling. They are clearly saying inflation is too high and the Fed is coming around to recognize the fact. Fed futures see the potential for a cut in June at about a 50/50 chance, but not much more after that. The first meeting of the year is in about two weeks from now.
Stocks around the world put up a decent turn higher, the STOXX in Europe ahead by .6%, a solid gain paced by strong moves up in France and Germany. The dollar fell .2%, German 10 year bund yields fell 1 bp the US treasury 10 yr yield fell 2 bps. Japan declined 1.8%, reopening after a holiday but Shanghai and Hong Kong were up sharply, higher by 2.5% and 1.8% respectively.
Earnings begin this week in earnest for the banks, we’ll hear from Goldman, JP Morgan, Citi, Blackrock and TSM among others. Some of these names have been drilled in 2025 but their charts show the froth being wiped away, which might bode well for a bullish earnings response. Monday evening had some really strong numbers from KBH and guidance as well.
Stocks started off the day with some heavy losses but it seems the 5800-5810 level on the ES futures was enough to interest bargain hunters. No doubt the market was oversold at that point (very early morning), but without some followthrough all of that effort may be for naught. Stocks in technology land were hit rather hard but also managed to close well off their lows, putting in a nice reversal candle. Today is key for a continuation.
Breadth was super weak again to start the day actually did manage to finish in the green. That was a huge effort by the bulls to make it back that far, but it won’t mean much if the market turns down today. New lows continue to push higher, this indicator is weak and on a sell signal. Oscillators were pretty well oversold early in the morning so that condition alleviated moderately, but the Nasdaq is still oversold, but looking to turn up.
Decent volume trends on Monday as the sellers got out of the way early and let the buyers step in later in the day. It was not easy though, turnover was robust in the morning with plenty of distribution, only some late buy programs helped to push the markets into the green. We have had a cluster of distribution days which has been responsible for the big price action to the downside, it may be over for the time being but needs to be watched closely.
The markets hit some good support levels with the SPX 500 probing below 5,800, even filling a gap from November 5th at 5,782. That served to be the low of the day as the SPX 500 slowly bounced back. The Nasdaq 100 did not fill its gap but did nearly tag the 100 day moving average, a spot where rallies have begun. The Industrials were clearly the best performer on the day, bouncing off oversold levels after filling the November 5 gap last Friday.
The Internals
What’s it mean?
It’s been a long time coming but we are going to start with the ADD today, a strong move up after getting trounced early in the session. This indicator has been beaten up for several weeks and while the gain today was minimal, it was the best performance of the year. Gotta start somewhere! The VIX fell off its highest levels of the day, put/calls continue to rise as did realized volatility. Ticks were a tale of two markets, heavy sell programs early followed by strong buy programs late in the day. Bodes well for a high probability continuation today, but all depends on the PPI this morning.
The Dynamite
Earnings this week:
- Tuesday:CVGW, KARO
- Wednesday:C, JPM, WFC, BLK, BNY, FUL, SNV
- Thursday:TSM, GS, BAC, UNH, MS, USB, PNC, INFY, MTB, JBHT
- Friday:SLB, RF, FAST, TFC, STT, SFY
Economic Data:
- Tuesday:PPI, NFIB optimism
- Wednesday:CPI, empire state index
- Thursday:Jobless claims, retail sales, philly fed, homebuilder confidence, business inventories
- Friday:housing starts, building permits, industrial production, cap utilization
Fed Watch:
Several Fed speakers are out this week and they will have some data to discuss. The prior week we heard from the rather hawkish Mikki Bowman who stated that rate cuts are unlikely for the foreseeable future. That notion comes from higher inflation and strong growth following the solid December payroll report. Five speakers through Wednesday will give us a preview of fed policy as they see things unfold.
Stocks to Watch
Yields – Bond yields moved up this week, the 10 year tagging 4.8%. That is not surprising as the trend in bonds has been to sell fixed income. But is it too bearish? We’ll find out later this week.
Volatility – January is not acting as many would have hoped for, with high volatility and poor data. The VIX is at relatively high levels now, higher than it’s been in over a month and trending upwards. If that continues so will the market correction.
Bank Earnings – We’ll hear from the major banks this week including JPM, GS and MS. They have been floundering of late but that could be a nice opportunity to add some shares on the cheap.
