The Fuse
Equity futures are bouncing back some this morning, a mixed picture with Dow Industrials slightly down and Nasdaq/SPX up modestly. Volatility is up about 1% this morning before the big CPI number hits. Estimates call for a jump in this number from .2% to .3%, the core CPI at 3.3% y/y. So far the stock market has not budged much with the potential for higher inflation.
Interest Rates are down again in front of the November CPI number, which is likely to increase from October’s reading. Regardless, the fed futures still point towards a cut at next week’s Fed meeting, but now the idea is the committee is likely to signal a pause in their rate cutting cycle in order to examine data and respond if inflation does not come down enough to warrant easier policy.
Stocks in Europe fell .3% as they followed US markets down. The dollar climbed .1%, gold is up modestly while crude oil is higher by more than 1%. German bund yields and US treasury yields both jumped 1bp, stocks in Asia were mixed as Japan was flat, Hang Seng fell but Shanghai rallied.
Earnings this morning from Macy’s were mixed but the important part is they guided their next quarter lower, the stock is getting hit on that. GameStop last night missed but is rising a bit, Stitch Fix beat and raised guidance, that stock is up 20%. Tonight we’ll hear from Adobe, tomorrow morning Cient and Liquidity Services.
More downside yesterday as volume is starting to turn sour. Breadth again was weak as the Russell 2K put in a sizable downside reversal day. If there is continuation today that would be bad news for the bulls. We have not had too many back to back down sessions in awhile but here we are. We can probably chock this up to profit-taking and tax loss selling, which may not last too much longer. The economic data next couple of days will be influential.
More poor breadth as the oscillators are now firmly in negative territory. It may take a few days to rehabilitate this condition, but as we prepare for a big week of data and next week’s Fed meeting there is no room for error, the VIX is already pretty low near 14%. That means in order to drive prices higher we might need to see a low teens reading, something we have not seen in awhile and is quite dangerous. New highs continue to crush new lows.
A day of distribution for the indices. Yes, higher volume on a down session means professional selling by big institutions. If we see markets rack up a few more of these or start to cluster, that could present a problem. Otherwise, this is just normal profit taking, the markets trying to scare people away. These are often great opportunities but we just don’t feel there has been a volume flush yet. We may not get one though until the new year, so that may be on hold.
A nice pullback in the markets here but we are yet to see a test of the 20 ma by the SPX or Nasdaq. The IWM and Industrials are there right now, and that means we could be looking in that direction for a bounce. The other indices however carry substantial weight and may need to see a bit more downside action, if so we still look to the 20 ma. On the SPX 500 that is just under 6K and the Nasdaq 100 a bit below 21K.
The Internals
What’s it mean?
The internals once again showing some ugliness, especially towards the end of the day. Several sell programs hit the tape late and pushed the markets down.
Ticks were red most of the day and really brightened their color the last couple of hours. VOLD got hammered and headed lower all session, volume just could not hold. ADD also was crushed as one would expect, ADSPD down hard, too. The VIX finished higher than the prior day and is trying to put in an uptrend.
The Dynamite
Economic Data:
- Wednesday:CPI, federal budget
- Thursday:PPI, jobless claims
- Friday:Import Prices
Earnings this week:
- Wednesday:M, VRA, ADBE, NDSN
- Thursday:CIEN, LQDT, AVGO, COST, RH
- Friday:N/A
Fed Watch:
Fed speakers are quiet this week as they prepare for next week’s meeting. This past week a Dealbook interview with Chair Powell revealed his hesitancy for being aggressive in cutting rates. The committee likely shares this sentiment too, but more data this week will help determine the path forward.
Stocks to Watch
Amazon – This stock was strong last week after their AWS event. We’ll see if they continue to make new highs, the shopping season is here at it usually means Amazon is on top of its game.
Inflation – With the November CPI/PPI this week, it’ll be important to analyze the numbers to see if inflation remains sticky or is actually falling.
The committee is more likely to favor a pause even if they do cut rates in a week.
Bitcoin – The crypto hit a milestone last week, tagging 100K for the first time. The momentum and liquidity is ver strong with Bitcoin and could lead to much higher prices in the short term, perhaps up to 125K.
