The Fuse
Equity futures are mixed as they try to bounce back from a down session on Wednesday. At the start of trading yesterday it did not look promising but then some news from the White House about trade and software companies put an end to talk about a rally day. This entire week has been filled with volatile action much like last week, and that ould continue through the end of the month.
Interest Rates are rising a bit this morning as bond investors take some profits and position themselves before the next Fed meeting. Stocks are moving slowly but may find a guide with fixed income today. The 2/10 spread (yield curve) has been coming down which means a traders have been buying a curve flattener. That is bearish for bonds. Fed futures are now pricing in 96% chance of a cut next week and in December, and likely the next cut in January. High yield remains elevated but is certainly vulnerable to selling.
Gains in Europe are helping to pace markets higher here in the US. The STOXX up .3% paced by gains in France and Germany, the FTSE has been strong of late and added .4%, the dollar index rose .1%, crude oil is ripping higher as is gold, up 1%. Silver higher by 2%. Japan fell hard, off 1.4% but gains in Hong Kong and Shanghai. Yields are up in Germany and the US, bunds up 1bp and 10 yr treasury higher by 3bps.
Earnings last night from Tesla and IBM were good but not good enough, the stocks are falling early in the pre-market. The numbers from big blue were actually pretty good but the stock had run up before earnings. The same for Tesla, though the company did miss on the bottom line. SAP also missed and is getting drilled. This morning earnings from AAL, Honeywell, Dow, Dover and Southwest Air.
Market volatility continued to weigh on stocks yesterday. While November became front month for the VIX (October expired on the opening print), it was some words from President Trump that put the bulls on their heels around midday. These comments are a bit unnerving to the markets but they have mostly been able to handle these tape bombs, but it may not be long before the sellers flee for longer than a couple of hours. Just awful price action./span>
Poor breadth carried over from yesterday’s weak finish, but the small caps got drilled Wednesday, we can look to that group as the culprit. Not question the small caps can carry the markets up or down, and a 1.4% loss is significant for the IWM. The oscillators are still clinging to positive numbers but another down session could cement further downside.
We noted yesterday the weak volume made this rally attempt suspect, and sure enough yesterday clocked in a distribution day on much higher volume, likely 50% better. That is bad news for the bulls, we still don’t see too many clusters of distribution but that are starting to stack up. That’s a huge red flag.
A few more weak sessions and we’ll get a test of the 50 ma one more time. It may not be long to get there either, especially if the VIX starts moving back up. It was only a week ago VIX futures tagged 29 but turned right back down. We still see a this mildly overbought, but if the trend in vol turns back up again we can really expect lower levels to be tested.
The Internals
What’s it mean?
A continuation of Tuesday’s porous action. VOLD continued downward as did the ADD but a late rally in the a/d line pushed this internal upward. TICKS were mostly red all day, plenty of sell programs hitting then entire session, the VIX also higher but did come off it’s best levels to close near the lows of the session. All in all, another poor showing by the internals.
The Dynamite
Economic Data:
- Thursday:jobless claims, existing home sales, fedspeak
- Friday:CPI, SPX PMI, sentiment final
Earnings this week:
- Thursday:AAL, DOW, HON, HAS, NOK, DOV, LUV, AN, TMUS, INTC NEM, ALK, NXT, DECK, BYD, F
- Friday:PG, GNTX, FLG, ITW, GD, HCA, VRTS
Fed Watch:
With the lack of data from the government the Fed finds itself in a quandary. Do they trust the own tools and make the assumption that inflation is not running rampant and the labor market is indeed slowing, or do they take a more cautious approach. Governor Waller seemed to believe the latter, we’ll hear from him this week along with Miki Bowman. Next fed meeting is coming up in about a week.
Stocks to Watch
Netflix – For all of its controversy, this company just continues to execute on their plan and deliver for shareholders. Expectations are somewhat high but that has never stopped Netflix in the past from beating and guiding higher.
IBM – Big blue has been on a roll lately and continues to surge higher as a non-AI play. We’ll find out more in the earnings call this week.
Industrials – A big week for the Dow as many names will report earnings this week and even more next week. With the index about 1% below all-time highs a surg through there might signal 50K is next up.
