The Fuse
Stock futures are sharply higher as they are carrying a nice bid from overnight. With the CPI cloud hovering overhead we could see the markets shake off any news on the inflation front today.
Interest Rates are modestly lower but will likely be a big mover following the release of the inflation report today.
President Biden signed an order restricting US investment in some high tech companies in China. This could be a first step towards a trade war with China. Capri Holdings is being bought by competitor Tapestry.
Disney earnings disappointed last night, The Trade Desk had a modest beat and this morning a strong earnings report from Alibaba and Yeti. Wynn Resorts also posted robust gains, helped by a surge in earnings from Macau.
A followthrough day to the downside has the indices back on their heels. Today’s CPI number is going to create a lot of volatility and confusion in the process. The trend is down for now and plenty of downside targets are live.
Breadth was weak again but not as bad as it was early in the day. Helped by energy and small caps, it was nearly a deadheat, but still negative for the indices in general. Breadth indicators are nearly oversold here and could rally back a bit.
Volume trends are still consistent with more selling to come, and there is simply very little room for error. We have noticed more downside volume here of late, especially in this new month of August. Until that changes the trend remains down.
A very poor close for the indices on Wednesday in front of the CPI release. We still see downside targets at 4,439 (gap fill), 4,400 and if things get really nasty there is 4,330 – the line in the sand.
The Internals
What’s it mean?
More downside action for the markets as a drop and recovery could not turn the markets around. In the end, the late day swoon moved the internals lower, the VOLD finishing at the lows of the session while the ticks were red most of the day. Put/call continues to reflect worry as big institutions are buying put protection.
Notice the VIX, which ran up early but sold off steadily all day long. It seems many are getting used to a drop in volatility after a news release, like the CPI later today.
We’ll see if that trend continues or changes.
The Dynamite
Economic Data:
- Thursday: CPI, Jobless Claims, Japan PPI
- Friday: PPI, Michigan sentiment
Earnings this week:
- Thursday: CYBR, DDS, HBI, RL, INDI
- Friday: SPB
Fed Watch:
We heard from Fed Governor Bowman this week who said rate hikes need to continue, and then Philadelphia Fed President Harker said maybe hikes are done. It’s hard to know who to believe, and of course the next meeting will be one where these different views are highlighted.
Stocks/Issues to Watch this Week
Interest rates – A huge pop this week has started to flatten the yield curve, which could be bearish for markets. If yields retreat then stocks may become attractive.
VIX – A spike in the volatility index this week surprised everyone, and markets fell sharply. This indicator could see a move up to 20% before it’s all over.
Disney – Earnings this week from the ‘house of mouse’, the stock has been a huge disappointment for months. I don’t expect any relief here but the stock is probably done going down.
