The Fuse
Equity futures are rallying modestly this morning after a wild overnight session. Early on in the afterhours post-NVIDIA earnings the ES futures were down another 40 handles, but that was enough to tempt dip buyers to pick up the pieces. Volatility is lower this morning, as usual in front of a long weekend, but there may not be enough buyers to keep prices elevated.
Interest Rates are slightly lower this morning as bond buyers come in for a buy one more time. It seems when yields rise up towards 4% on the 10 year the demand returns to keep yields lower. It makes sense if the Fed is going to enter in a rate cutting cycle, however long it may be. The 2 year yield has fallen sharply and is now under 3.9%, nearly matching the 10 year. The inverted curve is just about done.
Can the markets finally rally this week? After some bifurcated action equity traders are trying to get back on track. In Europe stocks were up slightly, the dollar index lower by .1%. Gold is ripping higher, crude oil up by 21 cents at this writing. The German 10 yr bund yield climbed by 2bps, Japan was flat overnight while Hong Kong was up, Shanghai lower again, down .5%. The Chinese economy is showing signs of weakness.
Earnings from NVIDIA last night were better than expected, but if you didn’t know that you were living on another planet. The stock fell in after hours but has rallied back to a more manageable loss. Also last night strong earnings and guidance from Salesforce, which is helping to lift the Industrials. Affirm also beat and offered strong guidance, Okta missed but Veeva Systems came out strong with a beat and bullish outlook.
NVIDIA earnings were out and caused quite a stir in the after hours. The stock traded down 7% but we’ll see how it performs later today.
We are near the end of August and the bulls are stumbling to the finish line. It’s been a positive month but two more down sessions will reverse that statistic. Meaningful economic data this week, the PCE for July is out Friday morning, just before we break for a 3 day holiday.
Breadth started out strong yesterday with good strength in the Russell 2K but the pressure mounted heavily and the avalanche of selling hit the last few hours of trading. Oscillators have burned off their overbought condition but are now about to go negative. New highs stopped expanding, but there is some room for this indicator before it goes bearish.
Turnover picked up on Wednesday, no surprise really as we had some good gains leading into the week. No doubt the bulls will be back but for now we should respect the bears’ attack on the markets. With A traders not returning until next week the B traders are trying to hold it together. End of the month window dressing often brings some buyers in but if the volume doesn’t improve to the bull side there we may have more distribution to talk about.
This seems to be the week where we see lower levels tested, especially on the Nasdaq and SPX 500. So far they have held in firm, the SPX 500 for it’s part did close under the 5,600 level for the first time in several days, but the 20 day moving average is quite a bit lower. As we know, markets move down much faster than they rise. The Nasdaq appears to have support at 19K and perhaps a bit lower if there is more selling by the end of the month.
The Internals
What’s it mean?
Stocks had their backs up against the wall the entire session, but the selling floodgates opened wide after the first hour and then a huge rush of sell orders hit the tape with heavy volume and that was all she wrote for Wednesday. VOLD was down all session, the ADD barely helping the bulls’ cause. VIX ran higher but did back off, however there was another rise in put/call, concerning to the bulls. Look at those ticks, red as santa’s suit, bodes poorly for the bulls today.
The Dynamite
Economic Data:
- Thursday:Jobless Claims, retail/wholesale inventories, pending home sales
- Friday:PCE, income/spending, consumer sentiment
Earnings this week:
- Thursday:BBY, DG, AEO, OLLI, CPB, BURL, BIRK, FLWS, DELL, LULU, ULTA, MRVL, GPS, ADSK, MDB
- Friday:JKS
Fed Watch:
Last week’s speech by Chair Powell on the view of monetary policy was just what the doctor ordered. It is not too often the markets guess exactly right what the Fed is going to say or do, but it happened last week. A strong surge higher with Chair Powell pouring gasoline on the fire. That’s nice, until things get too giddy. Two Fed speakers scheduled this week (Daly, Bostic) so we may hear more about policy before next month’s meeting.
Stocks to Watch
NVIDIA – The big chip maker will report earnings Wednesday after the close, and no doubt they will hit the ball out of the park once again. Expectations grow each earnings report as the bar is raised, but the company continues to see more money flow into the stock. A huge report for tech.
Volatility – We have seen a huge run down in volatility the past few weeks, and given we are in front of a three-day holiday we may see the VIX tumble even more. Below the 200 day moving average would be a bullish situation for the markets.
PCE – End of week we’ll get the Fed’s preferred inflation gauge, the personal consumption expenditures. This indicator has been trending down slowly, if that continues it bolsters the Fed’s stance to cut rates sooner rather than later.
