The Fuse
Equity futures are backing away again as money flows are leaking. Today’s Fed decision will go a long way to determining the direction of the markets later this month, and in fact the true response to the policy move will probably not be felt for months. The market’s response however may be immediate.
Interest Rates are slightly higher this am, the 10 yr pushing up towards 4.2%. If this trend continues that could problematic for stocks. High yield spreads remain tight, the 2/10 spread is tightening a bit but still has a nice spread, that may change after today. Fed futures seeing a cut today at 90% probability but LESS of a chance in January and March. We’ll see what the projections are looking like after the release of the statement at 2pm EST.
Stocks are hesitating this morning as traders choose to let others step forward first. The STOXX though was flat overnight, FTSE added .1%. The dollar index fell that same amount, gold is off slightly while silver is up more than 1%. Crude oil is back up and pushing towards $59. Yields in Germany rose 2bps, in Japan stocks were down .1%, Hong Kong up .4% but Shanghai down .2%.
Earnings last night from Cracker Barrel missed, but Casey’s General Store was up nicely, the stock backing away though on profit-taking. Braze was also strong. Tonight we hear from Oracle, Adobe, Synopsis and Nordson.
A bit more downside for the indices but subdued from Monday’s action. The range was narrow though, breadth was positive but well off the best levels of the day. It seems the markets have little room for error after this meeting is over, it is feeling more like this is going to be a sell the news event. If so, look for some levels to be tested.
Breadth is falling back again, though it was positive this is nothing like we saw around Thanksgiving and a bit later than that. We were expecting a ZBT signal to trigger last week but the hurdle/standard is high. That is why this is such a rare but successful signal. Oscillators came up slightly, new highs still crushing new lows.
Poor volume again as it appears traders were simply squaring positions before the big announcement later on today. With the lower turnover and a down day that means it does not qualify for a distribution day, though we could see elevated volume later this week, and certainly next week during a triple witching expiration. First things first.
We could see the markets sell down after the fed decision, and yes after a rate cut. Why is that? Basically a cut with a ??? after it for future moves, but then again if that happens we won’t have to wait too long for another cut as a new Fed chief will be in charge come May. If we do sell down look for the 20 ma to provide some support, maybe 2-3% lower./span>
The Internals
What’s it mean?
Not impressed by the internals lately. Tuesday’s markers were positive but weak and finished poorly. That is what plagues this market. Maybe we should only have the markets open for 3 hours then close it! Ticks were spread even but mostly red, some heavy sell programs late in the day. We saw positive VOLD but not great, and the ADSPD fell hard and finished in the red. VIX climbed end of day, we might see that fall sharply today.
The Dynamite
Earnings this week:
- Wednesday:CHWY, PLAB, REVG, DAKT, ORCL, ADBE, PL, ASYS,NDSN, SNPS
- Thursday:CIEN, LOVE, MANU, VRA, AVGO, LULU, COST, RH, QX
- Friday:JCI
Economic Data:
- Wednesday:Fed decision, press conference, employment cost index
- Thursday:jobless claims, trade deficit
- Friday:wholesale inventories, Fed speak
Fed Watch:
The big meeting all have been waiting for is finally here, the last Fed conference of the year. Fed futures are expecting a rate cut on Wednesday and in all likelihood that will happen, but it’s the statement and the press conference that will be even more important. Further, economic projections will be out, the latest views of where policy, gdp, inflation and unemployment will be down the road.
Stocks to Watch
Volatility – The VIX shows high complacency right now, the market is ripe for a rip lower. Volume trends are good, dip buyers may be active again on the next move down.
Oracle – Earnings this week from this mega tech name, many have been watching this one closely after a monster move up in September. The stock has now lost most of that move and momentum seems to be building to the downside.
Retail – Strong retail numbers from a few companies lately has the bulls optimistic about this group. However, few and far between, we’ll hear from lululemon and a few other retail-related names this week to see how the consumer is doing.
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