The Fuse
Equity futures are bouncing back positive from a moderately volatile overnight session. During the evening stocks fell a bit but found their footing and look to extend Monday’s gains. There is some resistance about 1% above current levels (5,825).
Interest Rates are rising again but that does not seem to bother equities. We have seen rises in rates be disenchanting for stock buyers, especially small cap stock buyers. But for now, the equity markets are running to the end of March with money to spend. Fed futures now see about a 50% chance of a cut at the July Meeting (3 more meetings). Again, that seems far-fetched unless inflation starts ticking lower.
Equity futures are rallying modestly following a slight gain in Europe. The STOXX was higher by .2%, France and Germany were mixed. The dollar climbed .1%, gold is higher and still above 3K per ounce, silver is up and so is crude. German 10 yr bund yields rose up 2bps, the 10 yr US treasury yield was flat. Stocks were mixed in Asia, Japan rose up .5% but Hong Kong fell sharply, down 2.3% as Shanghai was flat.
Earnings are sparse this week but we’ll hear from GameStop tonight and then Chewy, Dollar Tree and Paychex tomorrow morning.
Heckuva a rally Monday following a weekend of no news. That was music to the ears of the bulls as a much needed rally ensued, the markets closed right near the highs of the session. Rallying with a gap above the 200 ma on the SPX 500 was a big move, and often leads to strong short squeezes. The 100 ma could be the next objective above 5,900 but that would likely imply the stock market had shifted into a strong uptrend.
Breadth was very good Monday, better than 3-1 on the upside. That bodes well for this rally to continue as the oscillators also remained above the zero line. We have been having our challenges with breadth, simply not confirming when the market was strong and with heavy distribution and poor readings when the market was lower. Monday’s solid move was different for a change, very bullish.
Poor volume as one would expect relative to Friday’s expiration, but that doesn’t mean it was negative. In fact, with the strong price action in the markets the volume levels were above average, and that is meaningful. Given the fact Friday’s volume was so high there was no chance of exceeding it yesterday, but a string of higher volume up sessions the rest of the week would point to the bullish trend continuing.
As mentioned last week, we could pretty much call out 5,500 as the most recent low level, now we need to see where the market stops rising. It might happen soon, the 5,915 level is the 100 ma, but we could get overbought before then. Nasdaq put in a tremendous performance, up better than 2% on good turnover. Followtrhough is always key, and if that happens a good squeeze up might develop.
The Internals
What’s it mean?
It ended up being a positive day for the indices but overall the internals look horrific. The breadth was poor, the ADD in the tank so was the VOLD, the ADSPD weak and nearly a trend down day. We saw heavy sell programs persist for most of the day, the VIX did decline sharply into the end of the trading session. Put/calls fell but after being up sharply Thursday. All in all, a poor session that needs some confirmation today, or it is all for naught.
The Dynamite
Economic Data:
- Tuesday:philly fed, consumer confidence, new home sales
- Wednesday:Durable goods, St Louis Fed President
- Thursday:Jobless claims, GDP revision, trade balance, retail/wholesale inventories, pending home sales
- Friday:income/spending, PCE, consumer sentiment
Earnings this week:
- Tuesday:CSIQ,RMBL, MKC, PONY, GME, WOR, CRVS
- Wednesday:DLTR, CHWY, JKS, PAYX, CTAS, MVIS, WOOF, VRNT, JEF, HBF
- Thursday:WGO, SACH, IPHA, LULU, BRZE, KULR, OXM, SKYH
- Friday:IPA, SLE, ZSPC, LIQT
Fed Watch:
The Fed came and did their thing last week, deciding to keep rates where they are and not offering too many clues as to their intentions. They did talk about starting to put an end to the QT program, reducing their sales of bonds to prevent a major liquidity crunch. As or inflation, Chair Powell believes tariffs will be a drag on the economy and bring up inflation, at least in the short term. A couple of fed speakers out this week talking up the economy.
Stocks to Watch
Banks – Financials have started to show better relative strength. No doubt they will be the leaders into the new month as earnings season gets underway in April. Top of the charts is JP Morgan but we will also be watching Goldman, Morgan Stanley and Citigroup as those names rally to the 20 day moving average.
Market Volatility – The VIX continues to be the story of late. The fear index has been on the rise lately and remains stubbornly high. However, release of the Fed notes last week pushed volatility sellers to work the VIX downward. Uncertainty over tariffs keeps a bid in the VIX though, we’ll see how much movement in the markets happens./span>
Tariffs – With the April 2 deadline looming towards across the board tariffs on other countries, we still have some uncertainty whether these are going to take hold or not. That is causing some angst but when the deadline passes (assuming it is not extended) we will have more clarity.
