The Fuse
What are futures doing?
Equity futures are heading lower this morning as a corrective period is underway. This could be the third down session in a row, we’ll be watching short term support to see if it breaks, volatility is rising as uncertainty persists.
News
Weakness across the pond as the STOXX index fell .2% led lower by drops in France and Germany. The FTSE was also down .2%, gold is down modestly as is silver, crude oil rallying one more time. The US dollar is flat. German bund yields rose to their highest levels since May 2011, US 10 year treasury yields rose and holver near 4.73%. The Nikkei fell 1.6% in Japan, Shanghai down.6% while Hong Kong was off .7%.
Volatility
Sharp move higher in volatility this morning, today is the last day of trading for the VX August future. It looks to be settling in around 16% but that could rise during the trading day. Too much complacency exists and the market will make you pay for it dearly.
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Interest Rates
Yields continue to rise, the 10 yr now well above 4.7% and that is painful for the equity markets this time of year. We do not have much of a bid already for stocks and sellers just come out of the woodwork when rates rise. The 2/10 spread is moving higher too, 30 yr yields at multi year highs around 5.3%, meanwhile high yield remains solid but fed funds is starting to price in more chances of a hike next month.
Earnings
Good earnings but terrible guidance last night from Fabrinet. Early today Home Depot with a beat but with mixed guidance. Baidu missed badly on their report. Later tonight Keysight, Toll Brothers and La Z Boy..
Events
A lousy performance. coming off the weekend, the bulls had nothing to show for it. Perhaps it was rising long rates that fueled the disinterest but whatever the case, any buyers were left stranded by the end of the session. Volatility remains low and that is a major red flag.
Breadth
Terrible action in breadth, better than 2-1 negative as that puts a nascent buy signal in jeopardy. Without strong breadth the markets are going to have trouble moving higher, oscillators backed away as did new highs vs new lows.
Volume
Heavier volume on a down day? Yep, that’s called a distribution day, perhaps we’ll have a turnaround Tuesday but don’t hold your breath, this time of year the bulls are gasping for air to get to the finish line of summer. Catalysts for the end of the month include NVIDIA earnings and the Jackson Hole conference, but that is not until next week.
Support Levels
A tough day but again we state the indices need to test some lower levels of support before moving meaningfully higher. The Nasdaq is certainly trying to make a case for new highs and may actually get there soon, but the rest of the market should probably rise with it. SPX 500 support is lower at 7.700.
The Internals
What’s it mean?
It did not feel horrific on the downside, but the internals sure looked awful. The ADD and ADSPD finished on the lows of the day, the VOLD weak all session and barely had a green tick up. TICKS were heavy red, so many sell programs all day long while the VIX rallied from Friday’s big drop. The market will not go up if the internals remain this bad.
The Dynamite
Economic Data:
- Tuesday:Housing starts, import prices, industrial production, cap utilization, pending home sales
- Wednesday:FOMC meeting minutes
- Thursday:Jobless claims, Philly fed, leading indicators
- Friday:flash PMI manufacturing and services
Earnings this week:
- Tuesday:HD, BIDU, KLAR, AS, PRE, HSAI, UCL, PONY, AUNA, KEYS, SQM, ZTO, JKHY, LZB, TOL, MRCY
- Wednesday:ADI, TGT, TJX, LOW, EL,WB, VIK, ZIM, DVLT, BILL, COTY , BULL, UFY, TLX, VTIX, NDSN, CCIF, CLIF
- Thursday:WMT, BABA, AAP, DE, NTES, FUTU, ATHM, DQ,ROST, FLO, OSIS, FLUX
- Friday:BJ, BEKE
Fed Watch:
It seems as if the fed funds futures market is paying more attention to the data than many people may think. The CPI and PPI came in lighter than expect and the odds of a hike came down drastically. Perhaps these two reports were of relative importance. Fed meeting minutes out later in the week.
Stocks to Watch
Volatility – We are again watching the VIX here as it remains quite low, down around the 15% level. That is not bearish per se but it certainly tells us to be on alert for any selling that needs to be accomplished.
Options – This is an important week as Friday options close for the August monthlies. We call this the double witching, and with volatility low we could expect to see some wider movement as markets are higher for the month (means bulls have profits).
Gold – Nobody has been paying much attention to the yellow metal, but it has quietly moved within striking distance of an all-time high..
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