The Fuse
What are futures doing?
After a rough Thursday stocks are trying to bounce and may have some success on this expiration Friday. Futures are up across the board but only a fraction of those losses, not too many catalysts today to drive stocks unless options gamma goes more positive.
News
Not much happening in Europe, the STOXX mostly flat as was France, Germany up .2%. The FTSE also unchanged. Gold remains hot, up better than 1.3% as is silver, crude oil climbed a bit to $87. The dollar fell again. Seeing a slight rise in yield, the 10 yr up modestly, German bunds mostly steady. In Asia, Japan was down .2%, Hong Kong up 1% or so and Shanghai up about .2%.
Volatility
Not seeing too much market volatility right here, the VIX remains low and that is usually good for stocks but has not been this week. Stocks have been selling off, and as we know there are a million reasons to sell. If the VIX rises to 19% or so and moves much higher then there will be trouble, for now the price action of the market is the leader.
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Interest Rates
Yields popped right back up yesterday as the news of a twist did not inspire any followthrough. That is disappointing, but sentiment is starting to turn negative while seasonal trends (bearish) take over. The yield curve is flattening a bit but remains in a steep uptrend, the bond market crying out for rate hikes. It’ll be interesting if they get them before the midterms, but I suspect Chair Warsh was not pleased with this new twist development, he is trying to get rid if the deck chairs (unload the balance sheet), not shuffle the chairs on the deck.
Earnings
Solid results from Ross Stores last night has that stock shooting higher this morning by nearly 8.5%. BJ came out with good earnings aswell and better guidance, membership expanding.
Events
Nothing positive about yesterday, a bearish day all around with internals leading the way. Breadth was poor, price action just downright pathetic and turnover on the rise. If the market were not already in a corrective phase then I would say it was a lock to happen soon. This recent breakout to the upside happened late in the month and now we start heading into more seasonal weakness.
Breadth
More negative breadth yesterday as this indicator remains on a sell signal. Oscillators are firmly negative too, and that means it will take some heavy lifting to turn them bullish. New lows have been printing much better than new highs, this indicator now on a sell signal. Fridays have had a tendency to challenge the bulls and bears, this being a big expiration I expect nothing less..
Volume
Volume is starting to pick up a bit, not surprising as we have options expiration today. However, when there is better turnover and the markets fall then we have to count it as distribution. Only IWM technically notched distribution but the other indices still look bearish with negative volume trends.
Support Levels
It appears some levels are going to be tested lower, and that probably means the 50 day moving average at the very least. Short term support has been failing, the SPX 500 at 7.700 fell like a hot knife through butter, now the old highs are going to be tested (7620-7600). We are not nearly oversold though and that may be a problem when tested. .
The Internals
What’s it mean?
A couple of things stand out in the internals, the TICKS heavy red, meaning lots of sell programs along with a higher VIX, but not out of control yet. The put/call ratio rose up smartly,, the VOLD and ADD just pathetic. If this is a correction, the internals are certainly on board.
The Dynamite
Economic Data:
- Friday:flash PMI manufacturing and services
Earnings this week:
- 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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