The Fuse
After a third straight day of nearly 2% gains the futures have calmed down somewhat. Over the last seven hours markets have made some wide moves, up 55 handles to down 20 handles, just your typical movement with elevated volatility. However, today might be one of those calmer days where we don’t see as much big moves as we saw earlier in the week.
Interest Rates are slightly lower today with the long bond catching a nice bid before the weekend. Fed futures still see more cuts than the Fed sees, meanwhile spreads have improved greatly with HYG and JNK showing nice gains over the past couple weeks. That should shore up confidence in equity and bond markets.
With strength overall midweek markets may take a step back today, but overseas saw a few gains. Europe was up about .2%, better gains from Germany and France while the dollar index climbed .3%. Crude oil is getting a hit, down more than 1% while gold’s selloff continues, same with silver. German 10 yr bund yields climbed 1bp, 10 yr US treasuries down 2bps while Japan had a robust day, up 1.9%. In China Hong Kong up by .5% while Shanghai was off slightly.
Earnings from Google last night were a nice beat on better than expected revenue and less fear of losing share of their search business. Intel missed again and reduced guidance, Celestica had a nice beat as well, this am we have SLB and Abbvie reporting.
We are at the end of a very wild week that saw the SPX 500 index moving more than 100 points each day. If you’re not sick from turbulence by now you have an iron stomach. But given the fact volatility remains elevated and has been for some time it makes sense, further the indices are priced high now and money flows continue to be strong.
Three days in a row and the breadth is now on a strong buy signal. The rout was on shortly after the opening bell, advancers beat decliners by a 4-1 margin, a decent beat for the bulls. However, oscillators are now really juiced up and are extremely overbought, which means the markets are ripe for a decent-sized pullback. New highs are starting to expand, this indicator now is neutral but is nearing a buy signal, which could last awhile.
Though the markets did post a nice gain on the day, better than 2% in some indices the volume levels were not robust. That tells us the buyers lack some conviction, and if we see a pullback on heavier turnover that will put this leg of the uptrend in jeopardy. So far though we don’t have that to worry about, but be aware price action is going to be very difficult to read until this new uptrend leg is more established. Remain cautious.
Three big up sessions in a row now for the indices and now we are looking at filling the gap from April (SPX, INDU) and eventually making a run at the 50 day moving average. It is going to tough get there however with such an overbought condition, but remember we are not in the timing business. Markets can move faster and longer than anyone can imagine. A move above the 20 day moving average was the first step in the rehabilitation process of the chart. Serious resistance at the 50 and 200 ma, but those are the next targets.
The Internals
What’s it mean?
Just a banner day for the internals, the VOLD and ADD were up for a third straight day and finished just off their highs. Look at those TICKS!
Heavy buy programs all day long, so much green on the board. ADSPD did not sport a trend up day but came close, VIX plunged all day long and is now at its lowest levels since the April 3rd breakout of volatility. Friday’s are not often kind to the bulls but this week could bring us something a bit different for a change.
The Dynamite
Economic Data:
- Friday:Consumer sentiment
Earnings this week:
- Friday:SLB, ABBV, PSX, CL, POR, SAIA, CNC, CHTR, LYB
Fed Watch:
With a potential for stagflation in our midst it makes sense fed officials are going to be more cautious. They still see evidence of inflation remaining a problem and even bolstered by tariffs. A slew of fed speakers out this week will hopefully give us some clarity.
Stocks to Watch
Earnings – This weeks starts the heaviest week of earnings for Q1 and we’ll get a nice sampling from various sectors. As beaten up as the stock market is this month it’ll be important to listen to these firms to get a clue of how worried they are about the economy going forward.
Tesla – After a horrendous Q4 report investors are hoping for a rebound. Yet, some estimates seem to believe the company did not have a great first quarter, it’ll be interesting to hear what Elon Musk has to say and tries to spin the news towards a favorable tone.
Volatility – Once again we are watching the VIX closely along with other risk off assets like gold, silver and bonds. The VIX retreated recently but still remains elevated with so much uncertaintly about.
