The Fuse
Equity futures look to start the day lower as the selling from Thursday continues. There has been very little bid in the market this week and it is showing up in different areas. We warned about poor technicals like breadth, rising VIX and put/call ratios recently, eventually they start to matter.
Interest Rates are very slightly higher this am but most are steady along the curve. High yield spreads are widening, the HYG has fallen below support as it moves with the stock market. 2 year yields look ready to climb again as it remains above the 50 ma at 3.57%. Fed futures are pricing in a better chance of a cut following some weaker jobs data. FYI, no labor report today for October as the shutdown continues.
Stocks are looking to head lower this morning following some mildly positive earnings news. The stock market is under some distribution here, eventually the buyers will be back but right now there is little to get bullish about. The STOXX was higher by .2%, FTSE lost the same amount. The dollar index rose .1%, gold is back above 4K and silver is making another run to 50. Crude oil up 1%. Yields in the US and Germany rose 2bps, in Asia stocks were off, Japan down 1.2%, Hong Kong down .9% and Shanghai lost .3%.
Earnings from Expedia were lights out fantastic (we own these calls in the Swing Portfolio). Also strong was AirBnB, but weakness in The Trade Desk and DraftKings has those names under pressure.
It sure seemed at the open the bulls were going to lean hard into the market, but they got the door slammed in their face early on and even as dip buyers tried to rally the troops, it was stlll a negative session on heavy turnover. We know what that means. Further, money is leaking out of the stock market in a big way here, whether it is just profit-taking or something ominous on the way, the exit door is becoming crowded.
Back to the old drawing board! More poor breadth keeps this indicator in the dog house, on a sell signal. Oscillators went deeper negative, we’ll see if any buyers are out there on a Friday to help pick up the pieces. Certainly some private economic data were responsible for the negative action yesterday. New lows are starting to creep up on a consistent basis, 6 of the last 7 sessions. This is now neutral. The A/D line was weak but probably could have been worse, perhaps more downside to come that nobody is expecting.
Heavy turnover yesterday as the indices notched another distribution day, it’s time to raise more cash if you haven’t already. When the market is in distribution we can experience some heavy downturns as panic starts to set in. No question the leaks each day are painful but the market is trying to grope for a bottom, it’s just not finding it. At some point the volume will dissipate and buyers will re-appear.
The testing of lower levels continues. Yesterday it was the important 6,750 on the SPX 500, and that level failed miserably. If there is a followthrough day to the downside the bears have a chance here. If the 50 day ma does not hold there is trouble ahead, but if it gets tested and the indices are oversold, there is a good bounce opportunity. Time to sit back and wait as things unfold.
The Internals
What’s it mean?
The internals did not start off poorly but certainly ended that way. Weak VOLD and ADD show big sellers at the end of the day, normally happens on a no bid session. TICKS were heavy red all session, another barrage of sell programs hitting all day long. Put/calls are on the rise again, VIX closed up near 19% but well off its highs. This indicator is starting to build momentum.
The Dynamite
Economic Data:
- Thursday:5 fed speakers, maybe some economic data
- Friday:Potential for jobs report, consumer credit, sentiment, fedspeak
Earnings this week:
- Thursday:COP, BCE, OSCR, VST, AZN, DDOG, ASPN, SBD, MRNA, TTD, OPEN, MP, IREN, SOUN, DKNG, INOD, ABNB
- Friday:CEG, WEN, FLR, SIX, BAM, DUK, HLLY
Fed Watch:
Last week’s Fed meeting was quite interesting. There were two dissents among the voters, one wanted no rate cut, another wanted 50bps. The committee gave the market what it wanted but Chair Powell refused to yield to market pressure for a December cut, instead saying it was ‘not a done deal’. That send the fed futures tanking and the market did as well, but it certainly came roaring back. It appears the markets are accepting the path of rates, whether fast or slow.
Stocks to Watch
Gold and Silver – Precious metals continue to do well with markets also strong. They could continue much higher into year end, and with strong momentum why not?
Bitcoin – With two months left in the year the shining alt coin could be poised to make a big move to end the year in style, at new highs. This week may start the process.
Earnings – Very strong earnings reports this quarter and this week will be the biggest one yet, more companies delivering that last week. We’ll get a good read on market valuations after this week is over.
