The Fuse
Equity futures are modestly lower on this final day of the week and just before the Christmas holiday. Monday will be a day off for all. Today starts the Santa Claus Rally (SCR) period, a seven day trading series where markets are often strong. The SCR will end at the close of business January 3rd.
Interest Rates are falling this morning as bond buyers continue to add to their positions. We may see a bigger allocation to bonds in the coming days as the year draws to a close.
An important inflation gauge today with the PCE release along with income and spending figures. If this report is in line or better it will embolden the marketplace to believe the Fed will cut sooner and more aggressively in 2024. Michigan sentiment will also be released today, it had been trending lower of late. European stocks were flat though technology and footwear stocks were down. Chinese stocks rallied for a second straight day. Gold is up about 1% and pushing towards $2,100 per ounce while crude is also on the rise, trying to finish off its biggest weekly rise in two months.
Earnings from Nike and guidance were a huge disappointment and has the Dow Industrials much weaker this morning. This loss by Nike puts the stock back to where it was about a month ago, the 200 day moving average. We would not be surprised to see this stock continue lower as volume is going to be enormous.
What a difference a day makes. After Wednesday’s spill there was nothing left to sell and the bulls took control of the game. Plenty of bullish action all day long, good breadth and depth and solid turnover makes us believe the other day was just a one off. With only five more trading days left in the year and a holiday weekend upcoming there could be a strong push to the new highs.
Amazing turnaround with breadth as the advancers routed decliners by more the 4 1/2 to 1. That is really impressive considering that weak move yesterday towards the close. We can see this indicator turn back to a buy signal with one more up session on Friday. Look for thin trading though as many have already headed out for the holiday weekend.
Really good turnover but not enough to offset Wednesday poor performance. That was a distribution day, but yesterday was hardly anything like it. Solid turnover though across various sectors, broad participation makes for some very good action upcoming if the bulls can get a follwothrough day here.
Traders still see the old highs in view, that is 4,818 on the SPX 500, and wouldn’t it be interesting to see that number hit right at the end of the year. Maybe it’s too ‘cute’, but the market does its work in mysterious ways, so if it happens that way then we simply just go with it.
The Internals
What’s it mean?
Tremendous energy in the markets especially towards the end of the day. Look at that VOLD and the huge spike towards the last hour of the day. That is some power, and the ADSPD reversed itself to a trend up day from the prior trend down day. The TICKS were especially strong though, see the green dispersion all day. That is some heavy buying, the TRIN traveled lower as it often does when the market statistics are in the bulls’ favor.
The Dynamite
Economic Data:
- Friday: PCE, Durable Goods, Michigan Sentiment, New Home Sales
Earnings this week:
- Friday: N/A
Fed Watch:
Some Fed talk last Friday caused many to take money off the table but the Chairman’s words Wednesday were pretty definitive. The committee kept rates in check and stated there was ‘talk’ of a time line for rate cuts. That spurred a slew of buying in stocks and yields fell sharply, the 10 year is now below 4% for the first time since August and its lowest levels since July. Truly amazing move lower but we may be at the far end of the move now. The inversion of the curve is extreme.
Stocks to Watch
Volatility – The VIX remains low, hovering near 12% and could even break LOWER this week by Friday (holiday coming up, volatility sellers are active).
Small Caps – The Russell 2K has been on fire lately, with yields falling sharply that means small cap names are getting heavy money flows. If rates don’t rise then the Russell 2K may finish the year strong.
Retail Sales – Last week’s report was pretty good but this is the last full week for shoppers to get ahead of Santa. Can the consumer pull it off once more?