The Fuse
Equity futures are bouncing around and mostly stable but well off the overnight highs. At one point futures tagged 5,583 before starting to sell down. There is good support here but a few gaps in the futures chart that eventually need to be filled. Today is a rather big options expiration day.
Interest Rates are dropping a bit this morning as bonds have the eye of the fixed income buyer. Rates moved up sharply on Thursday so perhaps the lower prices are a nice short term bargain. Fed futures sold off yesterday as the prospect of a double rate cut in September faded with the strong retail sales report. It is now our view there could be a 25bps cut coming at each of the next three meetings.
A huge move by the US stock market helped stoke some buying overseas. STOXX in Europe were up modestly, the US dollar index fell .1%. German 10 yr bunds declined some, in line with the US 10 year yield. Stocks in Asia rallies, Japan up 3.6% while Hong Kong was up 1.9% on heavy turnover.
Earnings last night from Applied Materials were good but the guidance was widened, which is hitting the stock today. After a near 5% up move on Thursday alone the stock is giving back some gains. Walmart of course was the star of the day Thursday, along with retail sales. As we approach the weekend markets are moderately overbought in the short term but the daily chart is not quite there yet, so we may see a bit more up next week before reaching overbought.
The bulls were really cranking it on Thursday following a very strong retail sales number that came out pre-market. The big drop from last Monday has been wiped away, and anyone who was bearish ‘down there’ has been taken out in a body bag. The bullish momentum continued with markets up for the fifth straight day in a row. Friday’s are not often big days in the summer and markets are overbought in the short term, so look for pullback opportunities.
Very solid breadth yesterday, the up issues just trounced the down issues, better than 5-1 to the plus side. This indicator remains on a buy signal. Oscillators are back into positive territory. New highs are once again crushing new lows, this indicator may now be on a buy signal. Breadth often leads the market, and with small caps now participating this could be a nice run into the Labor Day holiday.
Really good turnover for a summer trading session. The bulls were running wild, volume trends were very strong all day and completely tilted to the upside. With the strong economic data as a catalyst the bears were caught wrong-footed from the start, plenty of short covering and bullish ‘piling on’ was happening all session.
So much for testing support! At some point it will happen, but for now the roar from the bulls is quite loud. Nasdaq is looking best here with strength from tech names, Mag 7 and others. Gap city for the Nasdaq, 2 gaps above and 2 gaps below. The SPX 500 has a gap at 5,667 about 120 points away from current levels. Industrials are moving like a freight train, only 2% away from all-time highs. Who gets there first?
The Internals
What’s it mean?
After a ‘dull’ session Wednesday the bulls kicked it into another gear. What a massive move, twice this week that happened. The VOLD and ADD were huge both days, especially yesterday. VIX has been totally obliterated, from 65% on Aug 5th to 15% currently. PUT/CALLS raced lower, ticks were demonstrably bullish, buy programs were big all session long. Bodes well for an up Friday.
The Dynamite
Economic Data:
- Friday:Consumer sentiment, housing starts, homebuilder confidence
Earnings this week:
- Friday:FLS
Fed Watch:
Probably a quiet week for the Fed in front of next week’s summer conference in Wyoming, known as Jackson Hole Monetary Meeting. Chair Powell is likely to deliver the keynote speech, where he will likely reiterate the committee’s stance on policy, and probably to pull any surprises. This meeting has often been a place where clues and hints are dropped to the public eye.
Stocks to Watch
Volatility – VIX really spiked last week but has had a crash down move since Monday. With lower VIX comes more confidence from traders and investors. We’ll see if the trend continues this week with some big earnings on tap and inflation data.
July Inflation Data – PPI out on Tuesday, CPI out on Wednesday, Retail Sales on Thursday. Those are the big numbers to focus on this week as they will give us fresh data to help us and the Fed determine the direction on monetary policy.
Retail Earnings – It’s a big week for retail with Home Depot and Walmart reporting their quarter. The charts are not terrific but they both have often surprised to the upside when the worst is expected, like now.
