The Fuse
Equity futures are getting punished as selling overnight in Japan and other markets has spilled over to US markets. This is a result of panic and widespread fear about the economy and if a recession is truly on the table. Last Friday’s job report was not horrible but some have said it is signaling a poor economic response. Suddenly disappointment the Fed did not cut rates last week.
Interest Rates are dropping as bonds are the safety trade again. As stocks get pummeled investors flock to bonds, the long end of the curve remains under pressure. Also under pressure is the Fed, which the market seems to be pushing into a corner. Dissatisfied with last week’s meeting outcome, investors are shedding stocks in a big way and continue to push for more rate cuts than promised. Yet, the committee cannot control the market with fear and chaos out in full gear.
Yen carry trade is unwinding and with it global markets are in trouble. The Nikkei fell 12%, as much as it fell in 1987. As a result the markets overseas have started to buckle under, it’s not just here in the US. Gold is soft while crude is also lower. In Europe the Stoxx was down a sharp 3%, dollar index fell .4%. VIX is up more than 100% this morning.
Earnings last week were a huge disappointment. We have the biggest week of earnings coming up which include Disney, Uber, Lilly, ELF, Amgen, Lyft and AirBnB. With the markets in turmoil here the bulls are looking for some good earnings results to turn the ship around.
Japan’s index fell overnight more than 12% as the yen carry trade was unwound. This is a complex trade where investors borrow at lower rates (like the yen which had zero rates forever) to buy stocks in other markets like the US. It works until it doesn’t. The jobs report and subsequent economic data seems to have thrown the markets into a tailspin. We have seen distribution days stack up for weeks
Horrific breadth on Friday followed through on Thursday’s disaster and now this indicator is very oversold. Oscillators are deep down but not oversold yet, meaning we could have more down to go before a rise. New lows are starting to creep higher, the Nasdaq list expanded by 200 on Friday. Red flag.
Volume was outta sight on Friday with very heavy prints in the Nasdaq and small caps. Those Russell 2K names have been hammered for two days in a row, simply no buyers even as rates drop. Why is that? because rates this low predict a recession fear, which is no bueno for the small caps.
Support levels have fallen like a hot knife through butter. So, we need to step back from a bigger view and see where support is on a longer time line. On the Nasdaq, 17500 and 17250 are obvious areas of the market moves lower, the 200 day as well first up at 17645. The SPX 500 planted a low Friday at the 100 ma and bounced. That is likely to be tested again however before long. For lower targets, a gap fill at 5064 and the 200 ma at 5010.
The Internals
What’s it mean?
Back to back powerful downside moves for the markets tell us the uptrend is in trouble. This is similar to what happened in April but back then seasonal trends were positive. Right now that is not the case. The VOLD sank even lower at the end of the day, put/call rose up and closed above 1 for the first time in awhile, this indicator still on a bearish signal. TICKS were super red all session and the VIX jumped to nearly 30% but backed off a bit. All bearish Friday.
The Dynamite
Economic Data:
- Monday:PMI services, ISM services
- Tuesday:Trade deficit
- Wednesday:Consumer credit
- Thursday:jobless claims, wholesale inventories
- Friday:n/a
Earnings this week:
- Monday:PLTR, HIMS, CSX, TERA, SPG
- Tuesday:UBER, FUBO, CAT, BAX, CELH, RIVN, ABNB, RDDT, DVN, AMGN, UPST, ATI
- Wednesday:SHOP, DIS, CVS, EMR, LYFT, SONY, HOOD, APP, HUBS, OXY, SRPT
- Thursday:LLY, LNG, NVAX, CRON, ELF, U, PARA, TTD, ARAY
- Friday:CGC, NIK, AMC, ALG
Fed Watch:
In what was considered a mildly dovish tone, the Fed’s decision to hold rates steady brought some controversy. Some on the committee had though a cut was the best way to start the process, and many economists thought the same. However, the weaker jobs report still showed gains, and perhaps policy is right until the next meeting in September. Already the markets’ hair is on fire, looking for 5 cuts by the end of the year. It is NOT happening.
Stocks to Watch
VIX – Volatility climbed this week to nearly 30%, a huge surge of fear. We often see that burned off quickly when worry rises up, let’s see if that happens this week.
Bonds – Fixed income had an exceptional week as bond traders flocked for some safety. Yields fell for various reasons, namely a worry the soft landing may turn into a hard landing with a recession on the table.
Nasdaq – Falling hard this past week, the tech-heavy Nasdaq is looking to recover some lost ground. With the VXN (volatility) very high and surging still we will see wide ranges, which means both big ups and downs. At this point some basing would be needed.
