The Fuse
After four down sessions in a row and moderately higher volatility the bulls are trying to regain control. Futures are up nicely but off their best levels of the day, Micron earnings last night are stoking a rally in the markets but with some news like CPI later today we’ll have to see how things unfold.
Interest Rates are slightly higher across the curve as markets await to hear how the CPI looks for November. We are still awaiting more data that was delayed from the government shutdown. Fed futures only seeing a 25 chance of a cut in January, more in April. High yield is still doing well with tight spreads, 2/10 spread is remains steady.
No net movement in Europe, the STOXX unchanged but France did add a small bit. FTSE up .1%, Japan lower by 1%, Hong Kong an Shanghai small gains overnight. Gold is down about .5% while silver is down more than 1% in volatile trade. The dollar index was flat, Bunds and US treasury yields fell 2bps overnight, crude oil slightly higher.
Earnings last night from Micron outstanding, beating across the board, raising guidance and margins, the stock is up strong overnight and into the pre-market. Darden is higher this morning after strong numbers but Accenture is lower. Karmax missed and is down about 9%, tonight we’ll hear from FedEx and Nike along with KB Home.
Another weak effort for the stock market, making it a rare four days straight down. After closing at an all-time high just above 6,900 the SPX 500 has now ‘quietly’ shed about 180 points, our roughly 2.7%. That may not seem like much as the market seems to yawn this action. But as we know, when a fickle crowd starts to get fidgety the sellers can come out in droves, and with only eight trading days left in the year perhaps those who did not book profits earlier than this will suddenly do so before December 31st.
Breadth started off strong but really got smashed as the day wore on. Up/down finished negative on the day but one might think it should have been worse, but it was only 11/14 bearish. It would only be a cause for concern if there were a cluster of these happening, and that seems to be the case. Red flag warning, even as the markets have been down all week. Oscillators still in negative territory, new lows starting to expand.
Nasdaq and the Industrials with a very poor day of distribution, these are starting to stack up and fast. This means institutional selling right under our noses, and when the big money is getting out there is no reason for us to be buying. No question the negativity is going to turn into a buying opportunity but it is not now, perhaps when the heavy sell volume abates.
We are getting the long-awaited test of support, and that will eventually be a good thing. Coming down after barely hitting an all-time closing high does not feel good, especially since this last top was barely felt. That’s what happens, there are many tops created but only the last one matters. Look for more testing as the IWM and industrials try to bounce off lower levels.
The Internals
What’s it mean?
An ugly session for the internals, rough VOLD and ADD, the VIX closing on the highs and ticks showing nothing but red. Heavy sell programs hitting all day long, no rally whatsoever as the bears took control early and led the markets lower. Put/calls are on the rise again, not a sell signal yet but certainly heading in that direction.
The Dynamite
Economic Data:
- Thursday:Jobless claims, CPI, Philly fed index
- Friday:Existing home sales, consumer sentiment
Earnings this week:
- Thursday:ACN, FDS, DRI, KMX, CTAS, FCEL, BIRK, ISSC, NKE, FDX, KBH, BB, AVO, SCHL, HEI
- Friday:CCL, CAG, LW, PAYX, WGO
Fed Watch:
Well the Fed did their thing last week and cut rates one more time, bringing the funds rate to 3.5%. That is still a bit restrictive policy but Chair Powell indicated that may be the last cut for awhile. The projections indicate one cut in 26 and one in 27, which may be pulled up. so that means a 3% rate by beginning of 2027, which may be the right policy figure. Lots of fedspeak this week before the holiday takes hold.
Stocks to Watch
AI – Much angst at the end of the week over some worries on the growth path of AI. Too much spending? Too much capacity? Even the dot.com days of 2000 when overbuilding happened seems to weigh on everyone’s minds. Expect some resolution soon.
Financials – Banks had a strong week as rates were lowered, this will help businesses grow and along with it bank loans. JPM was beaten down but came back in a huge way end of week. Looking for some continuation into the end of the year.
Volatility – The VIX is curiously low here with quite a bit of uncertainty, but perhaps it will just stay low until year end. We often see that happen but with recent saber rattling about rates, employment and inflation we could see more traders taking protection.
