The Fuse
Equity futures are getting hammered on this first trading day of December, thanks in large part to a huge drop in bitcoin and other cryptos. We have noticed a strong correlation of performance between crypto and the equity markets, it continues today. Strong retail sales over the weekend should help stem the tide, but for today it is likely risk off.
Interest Rates are moving up as bonds are sliding lower this morning, usually on a risk off day like this we see more bond buying but today not the case. Yield spreads are widening a bit, the 10 yr is threatening to drop below 4%. Junk yield spreads remain tight, no recession seen from this indicator. Next week’s meeting is likely to be contentious, but fed futures are reflecting an 86% chance of a cut.
Stocks ar getting punished this morning following the weekend with Europe down .3%, led by larger drops in Germany and France. FTSE was off .1%, gold is rallying to new highs as is silver, crude oil up more than 1%. The US dollar index down .1%. Stocks in Asia were mixed, Japan down 1.9% but stocks in China up, Hong Kong higher by .7% and Shanghai up the same. Yields in Germany and the US rose by 3bps and 2bps respectively.
Earnings on tap this week for some big tech names and retail. Top of the list are Snowflake, Salesforce, Marvell, Dollar Tree, Macy’s, Okta, Box, Five Below and Victoria’s Secret.
Stocks had a very strong week but are now nearly overbought. On some metrics that is true, and when everyone is done buying there is only one thing left to do — sell. But that does not mean the market has to go down, in fact we could see a rotation from one group to the other happen very quickly, enough to ward off a bear raid.
Breadth has been very strong all week and is now flashing a buy signal. It’s about time of course but we cannot dismiss this strength along with the volume a/d that has really improved. Oscillators are strong and positive while new highs are starting to eclipse new lows in a big way. One more strong reading puts this intermediate indicator on buy signal.
Volume has been porous, not much of a surprise during a holiday week. We should see more good turnover this week and through the Fed meeting, then it might slow down until the Santa Claus rally period begins.
Support levels held firm again, the IWM very impressively moved off those lows from about 10 days ago. It is this index that is likely to carry the markets to new highs, don’t be surprised if that happens before year end.
The Internals
What’s it mean?
A dominant performance by the bulls this week as it relates to the internals. The VOLD never went negative, so impressive while the ADD remained strong. VIX got pounded, the TICKS super strong again with green all over. Heavy buy programs the result here. Fly in the ointment? Heavy put/call ratio on Friday with a spike above 1, else nothing bad here.
The Dynamite
Economic Data:
- Monday:PMI, ISM manufacturing, Chair Powell
- Tuesday:Bowman speaks, auto sales
- Wednesday:ADP, Import price index, services PMI, ISM services
- Thursday:Jobless claims, trade deficit, Bowman speaks
- Friday:PCE, income/spending, consumer sentiment, consumer credit
Earnings this week:
- Monday:CRDO, MDB
- Tuesday:SIG, UNFI, MRVL, CRWD, GTLB, PSTG, AEO, BOX, OKTA, ASAN, LESL
- Wednesday:DLTR, M, THOM RBC, CRM, SNOW, FIVE, GWRE, HQY, PVH, TLYS
- Thursday:KR, DG, HML, BBW, SAIC, TD, DCI, HOV, RBRK, DOCU, S, ULTA, HPE,
- Friday:VSCO, KNOT
Fed Watch:
Plenty of talk from the Fed recently and most of it has been dovish. Since NY Fed Chief Williams said he would be voting for a cut at the next meeting, the futures market has done an about face. We’ll hear from Chair Powell this week along with Miki Bowman, who is in the rate cut camp.
Stocks to Watch
Small Caps – What a resurgence of the ‘littles’ in the market. Their leadership is certainly important to keep the market trending higher.
Retail – Several retail names will report this week but more importantly is hearing how the consumer is doing the first weekend of holiday shopping. It seems records may be broken this year.
Rates – We always keep a close eye on rates but during this start of a new month if they head lower then we are likely to see continuation of the stock rally.
