The Fuse
Equity futures are modestly lower this morning as the hangover effect from Tuesday’s pounding is giving the bulls a headache. Some big earnings news this morning from Target and Lowe’s, we’ll have some Fed speakers out later today as well.
Interest Rates are barely moving as the fixed income market prepares for what Chair Powell might say. To be honest, the bond market is also more intent on the data, which is starting to reflect sticky inflation. The 2 yr and 10 yr seem to be looking for a cut or two down the road. High yield bonds remain in demand.
Stocks are looking to start lower this am, Europe was down with the STOXX off .3% led down by sharp losses in Germany and France. FTSE was off slightly, the US dollar index was flat. Gold is moving higher at 3,373 while silver dips, crude oil higher by nearly 1.5%. German bond yields were down 1bp, 10 yr US treasury bond yields up 1bp, Japan’s Nikkei fell sharply, off 1.5% but gains in China. Hong Kong up .2% with Shanghai up 1%.
Earnings last night from Toll Brothers were solid with very good metrics but a few hiccups. This morning heavy weakness from Target, Estee Lauder but strong numbers from TJX. Tonight we hear from Nordson and Coty, tomorrow am we get Walmart, Hovnanian, and Canadian Solar.
Weakness continued Tuesday was a heavy dose of selling that started and ended with the Nasdaq. This big index has been riding high since April, having moved up nearly 40% from those Liberation Day lows. But recently the tech-heavy Nasdaq is showing signs that it is struggling to move ahead. We have talked recently about poor liquidity being a problem and that is plaguing the Nasdaq and even spread to other areas of the market.
Good breadth yesterday but poor price action all around sets up a negative divergence. Oscillators though are still negative (Nasdaq) and that could pull down the markets further. Price action needs to lead and be the indicator that remains positive even if the others are not. New highs continue to print strong as this indicator is on a buy signal.
Monday’s weak turnover was a tell, meaning up or down Tuesday would be either accumulation or distribution. It was the latter, and that is the second one in a week. That’s not alarming yet, but clearly buyers were not interested in these higher prices, stocks fell under their own weight. If this continues we may see the sellers pour it on and then a cluster of distribution may occur.
Some say it was about rotation, as some stocks were actually higher on Tuesday and the breadth was good. I’ll say that was mechanical, under the hood the market does not look good at the moment, and with nothing on the horizon to carry it higher we could see some excessive moves down. Liquidity is still very poor and with Chair Powell coming up Friday he could strike fear in the heart of the bulls.
The Internals
What’s it mean?
I’m going to call the internals from yesterday ‘wacky’. There is no simple explanation for positive breadth, strong ADSPD and even a positive ADD when the markets get pounded. This a negative divergence though, and could be rehabilitated or simply roll over. Put/calls remain steady, VIX rose up a bit while TICKS were heavy red all day. The VOLD just week, which says volume is not coming in positively. Take note of that.
The Dynamite
Economic Data:
- Wednesday:Minutes from the prior fed meeting
- Thursday:Jobless claims, philly fed, PMI services, manufacturing, existing home sales, leading economic indicators, Jackson Hole conference begins
- Friday:Jackson Hole conference
Earnings this week:
- Wednesday:TGT, EL, ZIM, TJX, ADI, BIDU, DY, NDSN, COTY
- Thursday:WMT, HOV, CSIQ, ZM, WDAY INTU, ROST
- Friday:BJS
Fed Watch:
It’s the big conference everyone has been waiting for: Jackson Hole. This annual get together of central bankers, economists, analysts and reporters is a pilgrimage for those who follow central bankers. Chair Powell will be speaking here and may shed light on Fed policy. We’ll be listening closely.
Stocks to Watch
Retail – Following Friday’s release of strong retail sales data, we’ll have some big names reporting this week. We expect good earnings but more importantly some clarity on how tariffs are affecting shoppers, inventory and pricing.
Nasdaq – As mentioned earlier, it appears the Nasdaq is taking a leg down but it could possibly be in for a sideways consolidation. Tech shares in this index have been on fire lately and could be due for a rest.
Interest rates – We saw rates pop higher Thursday after the hot PPI number. Without much data other than housing this week we watch fixed income closely to see if there is interest in buying bonds at lower levels.
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