The Fuse
Equity futures are giving way to the sellers early this morning as yields are up along with volatility. Remember there is a big options expiration coming on Friday, after the Fed decision and the wild movements that often follow.
Interest Rates are turning back up on the long end of the curve as we start the first day of the last Fed meeting of the year. If the committee follows through and gives the market what it expects (25bp cut) then the curve will no longer be inverted (likely).
Stocks are falling overseas, the STOXX in Europe lost .5% on some good turnover. Gold is down about $14 at this writing, crude oil off about 1%. US 10 yr treasury yields are up 2bps, German 10 yr bund yields flat while the dollar climbed again, up .1%. Stocks in Asia were down for a second straight session, Japan down .2% while Hong Kong was off .5% and Shanghai down .7%.
Earnings are slow this time of year but some big names will be forthcoming later in the week with ACN, Nike, Micron and FedEx.
The big event of course the Fed meeting this week. This is the last one of the year and the committee will likely cut rates one more time but also signal a pause in future policy moves. Also, less than two weeks before Christmas and retailers are getting nervous about late shoppers. Will they come through once again?
Stocks pushed higher on Monday but again breadth was an issue. Strong to start the day, the total breadth finished weak, 16-11 on
on the downside with some heavier sell programs hitting end of day. We continue to look for some light at the end of the tunnel but it is not there. Oscillators remain negative, perhaps there will be a late grab by the bulls to move breadth to better statistics, but this indicator is oversold.
Volume was moderate Monday but is sure to pick up later in the week as options expiration has an influence. Further, the Fed meeting starts today, the committee will be in discussion over policy until just after midday tomorrow. We could see some very heavy volume prints the next two days and then obviously on Friday’s expiration..
The Industrials were down again, 8 of 9 sessions down, there just is no support at this point but maybe following the Fed decision tomorrow some buyers will step up to the plate. IWM small caps may have planted a low the other day, but this index needs some help, too. Nasdaq flew out of the gate and is very strong, it is due for a pullback.
The Internals
What’s it mean?
We are needing to change the internals to just plain ‘coyote ugly’, because as you can see from the octagon the indicators are not a pretty picture. The VOLD is where we start, volume a/d has been awful as you can see for days and even with a strong up last Wednesday it still finished poorly. The ADD is something else, horrible and showing more declines than advancers, The VIX did climb too, put/calls were lower and ticks were scattered but mostly red. If this is all the bulls have in terms of energy, trouble is ahead.
The Dynamite
Economic Data:
- Tuesday:Retail sales, Industrial production, cap utilization, home builder confidence
- Wednesday:Housing starts, FOMC rate decision, Chair Powell press conference
- Thursday:Jobless claims, GDP revision, Philly Fed, home sales, leading economic indicators
- Friday:income/spending, PCE, consumer sentiment
Earnings this week:
- Tuesday:HEI
- Wednesday:GIS, BIRK, JBL, TTC, MU. LEN
- Thursday:ACN, DRI, CTAS, FDS, PAYX, CAG, KMX, NKE, FDX, BB, SCHL
- Friday:CCL, WGO
Fed Watch:
We have come to the last Fed meeting of the year and in all likelihood the committee will cut rates another 1/4 point. I suspect there will be rigorous discussion and dissent over policy this time around. Inflation remains sticky and the FOMC is showing some concern that further easy money policy is going to stimulate inflation and recreate another spiral. The Fed needs to temper enthusiasm, which may feel like a splash of cold water in the face.
Stocks to Watch
Volatility – The vix futures will roll next week along with SPX futures, which move to March. The VIX is extremely low here, under 14% and has quite a bit of separation from the future (about 5% differential). Look for some movement this week.
Options – A huge option expiration week coming up Friday that could bring a slew of volume and movement post Fed meeting.
Bonds – They have been slowly selling off recently and if the Fed does cut rates the inversion is likely to over for the first time in many months. This simply means the yield curve is back in alignment, but for how much longer?
