The Fuse
What are futures doing?
Another higher morning for the ES futures as the index looks to clear the 7800 level for the first time ever. It doesn’t seem that much of a stretch as the momentum is in the sails of the bulls, but then sentiment is very complacent.
News
The beat rolls on in Europe as the slow rise up continues. STOXX higher by .1%, good gains in France and Germany, the FTSE down .3%, gold is slightly lower, silver down 1% and crude down 1.5%. The US dollar is flat. Yields are mostly flat across the curve, Bunds higher by 1bp while 10 yr US treasury yields down 1bp, Japan continued its rally and rose up 1.2% but losses in China, Hong Kong down .4% and Shanghai down .5%.
Volatility
A sub 15% on the VIX has us on high alert, this is a time to be cautious and careful, paring back holdings aggressively just in case some volatility picks up. Today’s PPI number might add that into the mix.
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Interest Rates
Yesterday we saw yields drop sharply after the in line CPI number but fixed income holders decided to do some selling instead. It was not intense though, yields finished right near where they started. 2/10 continues to rise up, signaling inflationary fears. High yield still remains in demand, while fed futures see less than 40% chance of a hike next month, it could go lower after the PPI release today.
Earnings
Terrific earnings from Cisco and Coherent but they are falling victim to profit taking this morning. That may change as the day goes on. Cerebras earnings awful and that stock is getting punished. Tonight Applied Materials is the headliner.
Events
Good day for the bulls as the positives were far better than the negatives. The CPI came in as expected and that released a bit of anxiety from the markets. VIX fell hard, and is now well below 15%, showing high complacency. There is not much worry off a correction here and why should there be if earnings remain the bullish catalyst to move higher.
Breadth
Good but not great breadth as the concern over churning markets continues. Last week only had maybe two such days but there is a lack of conviction on either side, and that means we are stuck in a tight range. The SPX 500 has showing a very tight coiled spring over the last few sessions as breadth deteriorates. Oscillators remain split, new highs have less of an advantage over new lows but still positive.
Volume
Another yawner with volume, that seems to be the situation here during these slow trading days. The only positive we can think of here is a lack of selling conviction, those who bought recently are not selling. If that continues we could see a bit more buying as the bulls and bears play a game of chicken.
Support Levels
Seems as though the market is not ready to test levels yet, but good news for the bulls is the short term moving averages are coming up fast to meet the current price, and that might just do the trick. That is incredibly bullish, especially when the momentum is so strong as it is here.
The Internals
What’s it mean?
More of the same from the internals yesterday as the VOLD just cannot get it together this week. Fluttering around the zero line is not making progress, and the longer this happens the more worrisome the new bulls will be. ADSPD just at the zero line, while ticks were again evenly distributed with buy/sell programs across both sides. VIX got hammered and is near the lows of the year, put/call also to the downside.
The Dynamite
Economic Data:
- Thursday:Jobless claims, PPI
- Friday:Retail sales, business inventories, consumer sentiment
Earnings this week:
- Thursday:MLCO, LUNR, FRMI, AIT, JD, BLSH, ASN,D TPR, XE, AMAT, FIGR, BLOB, BEAT, SPRY, WKHS, TMC, GEMI
- Friday:OTLK, PAVM, LNZA, LFWD, ACXP, TMS, SIND, RMIX
Fed Watch:
There is no fed meeting until mid September but many are pointing towards the Jackson Hole Conference in a couple of weeks as a place that might shift sentiment. Often times the Fed Chair makes a speech that telegraphs policy, it has been used in the past as a transmission method prior to the next meeting with potential market implications.
Stocks to Watch
Volatility – The VIX is below 15%, which on its own is not a problem but indicates market players are rather complacent. If that continues there will be some price to pay down the road. Summertime though is often when we see a lack of volatility.
Small Caps – No question the small cap Russell 2K is going to benefit if rates fall further. That could be the signal after a weak July employment report, but one number does not make a trend. There could be very good reasons for the drop in payrolls.
Breadth – We have been watching breadth closely over the last six weeks, it has really been poor but now with a price breakout perhaps those on the sidelines will step up and start buying.
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