The Fuse
Equity futures are rallying smartly today as it appears the first day of trade in 2026 will start off on a positive note. This being Friday however means that some selling is going to take place before the weekend, but those looking for the Santa Claus Rally indicator to be positive have one more day to make it happen (Monday).
Interest Rates are modestly lower this morning as bond buyers pick up some bargains. Yields are rangebound and have been well-contained for over a month. High yield spreads remain tight as this group is attractive given the strength in the economy. 2/10 spread is tighter, fed funds seeing the next cut likely in April.
Stocks are moving nicely higher in Europe, the STOXX up by .3% led higher by Germany and France. FTSE picked up .4% on this first day of trade in 2026. Japan was close as was Shanghai, Hong Kong up a robust 2.8% on volume. Gold is higher again as is silver, crude oil down 1%. The dollar index flat. Yields in Germany were up 2bps while 10 yr US treasury yields were unchanged.
No earnings on tap for this week.
Well, that finishes a poor last four days of trading for the markets in 2025. That’s right, four straight down days have nearly torpedoed the santa claus rally period, and instead of good tidings the market is about to be served a huge lump of coal. It is not common to have 4 down days in a row, far less common during this last week of the year, the last time this happened was in 1967, nearly 60 years ago. Regardless, the indices still finished higher even as they stumbled to the finish line.
Breadth indicators easily on sell signals now, in fact they could lead the markets substantially lower if we are not too careful. Fear is not widespread, the VIX finishing off the year under 15%, and that is after a good beating the last four sessions. If volatility starts to rise again, we’ll have more big losses to deal with. Oscillators firmly in negative territory, new highs still ahead of new lows but that gap is narrowing.
Turnover picked up as expected on this last day of the year, not to mention the heavy option volume as well. Internals were ugly and volume-related breadth was poor. No doubt some tax loss selling happened this week and accelerated on Wednesday, perhaps that wraps up and the buyers return in the new year. A distribution day though is not what the bulls had in mind, starting from scratch with a new year.
Perhaps pulling back to the 20 day moving average before the ‘A’ traders get back to their desk next week was needed. Maybe, just maybe the markets will once again bounce from this important level, making it clear the uptrend is still alive and well. However, the sellers are still active but we’ll have to see how much today and into next week.
The Internals
What’s it mean?
Can we say four down days in a row? The internals certainly called it this week, with poor VOLD and TICKS all week long. The VOLD finished at it’s worst levels, so did ADD as the sellers just took over. No bids at all as the market flushed right to the finish line. Put/calls are rising, the VIX settled near highs of the day, and ticked only at 15%. We need a good rise in volatility to really shake the trees a bit. TRIN rose up smartly, too. Just a bad way to finish the year.
The Dynamite
Earnings this week:
- Friday:n/a
Economic Data:
- Friday:n/a
Fed Watch:
Not much going on with the Fed this week other than the meeting minutes will be released early in the week. No doubt we’ll see how the committee came to a conclusion and if there was some contentious moments. Remember, there were some on the FOMC who believed there should have been no cut in the meeting.
Stocks to Watch
Precious Metals – An amazing run for silver and gold this year as they hit new records and then some. Will we see them continue on?
Bitcoin – Not living up to expectations, the crypto currency is mired in a deep bear market, though we should not take that too seriously. Many are predicting doom for bitcoin, but that has been the case in the past and been totally wrong. When the bulls push the momentum is when we’ll see this start to shine.
volatility – The VIX is dangerously low and offers a great opportunity buy volatility and protection. There is not much good news to drive stocks higher but no question the sellers can get the markets lower in a hurry.
