The Fuse
Equity futures are up sharply this morning as the market tries to string together two straight days of gains. Volatility remains high but the VIX has been coming down from Monday’s elevated levels. We still see a bit of trouble ahead but the buying that often takes place at the beginning of the month is getting a late start.
Interest Rates are slightly higher as some bond traders take recent profits. Yields across the globe are also floating up. Fed funds futures have backed off slightly but still expect the Fed to be more aggressive on rate cuts. We just don’t see it happening this fast, the markets will be highly disappointed.
Stocks across the globe were higher overnight. Europe gained roughtly .5% on good volume from its participants in STOXX, The Nikkei in Japan continues to recover from Monday’s mini crash, China stocks rose as well. Gold is up modestly, crude oil higher by 1.5%. The German Bund yield is up by 5bps.
Earnings were good from ABNB, AMGN and RDDT but not good enough to drive them higher. Lyft this morning beat but surprisingly provided a weak outlook. Disney is out this morning and is lower after beating earnings but missing on revenue.
With receding volatility there will be some calmness in the markets within a couple of weeks, but for now we can expect some rather violent moves to happen. That yen carry trade unwind was pretty much responsible for the errant action this past Monday, and it is probably complete. Plenty of interesting action to come though.
An oversold market is dangerous to play. Witness Tuesday when stocks were sitting at a deep oversold condition prior to the open. Oversold is not a signal, hence more selling could happen but at the risk of getting to a ridiculous oversold, stocks were due for a relief rally. Breadth improved of course but finished off the highs of the session. .
More heavy volume but only a fraction of what we saw Monday. Still, if there are buyers ready to pick up on the dips then we should see better turnover on the up sessions. Problem is, heavy selling and poor price action is going to scare most people away from the markets, at least for the moment. If the turnover rises and markets head lower then we’ll know Tuesday was a head fake.
Was Monday ‘THE LOW’? We don’t really know that but certainly the market is trying to establish that area. However, we know a good low is not made on the first trip down, it needs to be tested at some point. That may happen soon but for now the indices are trading in a no mans land. Previous support levels have turned into resistance. It’ll take some time for these levels to be penetrated and held for good.
The Internals
What’s it mean?
A bit of relief but that’s all it was. In fact, closing at the lower end of the range makes us believe this is some sort of head fake. We continue to believe the markets need to prove themselves. The internals were pretty strong though after three fractured sessions. The put/call came back in under 1 but is still elevated. Ticks were green all session, heavy buy programs persist. The VIX fell sharply though and that augers well for more rallying, but it is still elevated.
The Dynamite
Economic Data:
- Wednesday:Consumer credit
- Thursday:jobless claims, wholesale inventories
- Friday:n/a
Earnings this week:
- 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.
