The Fuse
After a strong Xmas eve session stocks are giving back some of those gains this morning. The hangover effect from holidays and a sharp move down in volatility this week is painful, but we’ll have to see how things go later in the week. Good feelings can move markets aggressively against the tide.
Interest Rates are on the move again, higher across the board as bond sellers continue to shed their holdings. The 4.65% level on the 10 year is key to hold, but if that is penetrated then 4.75% is right around the corner, which would be 50bps above fed funds and signaling to the Fed to slow it down on the rate cuts.
A nice relaxing day off midweek but it is back to work on Thursday. Only four trading sessions left to go in 2024 and the scramble is on to add stocks where possible. That of course is an emotional and not practical response but a very powerful one. Bonds continue to suffer as yields climb (higher on Tuesday). China’s Shanghai market was up a tiny amount, stock markets in much of Europe were closed.
Earnings are sparse this week, nothing significant to consider as investors await the start of next earnings season which starts in January.
It’s a short trading week but still some action will be had. Don’t forget, the Santa Claus Rally period started Tuesday and runs through January 3rd. ‘If Santa fails to call, the bears may come to Broad and Wall’
Strong breadth on this first day of the Santa Claus rally points to good things ahead. ES futures clised right under 6,100, we may see a run by the SPX 500 towards that level soon (currently sitting at 6,040). Stock breadth has been awful for most of the month but with four trading sessions remaining in the year and a chase for return there could be more bullishness in store.
As mentioned Wednesday volume was going to be a low print end of day, naturally due to the short trading session. But traders are back today and might make a run in prices higher. Much of the selling volume that started beginning of the month seems to be over, can the bulls retain control and bid the market to new highs before year end? It just might happen during this SCR (santa claus rally) period.
As the markets tested some support levels last week following the Fed meeting, it seems to have gotten that out of the way. Of course, that frightening move down was explosive and violent, and most definitely shook everyone into a worrisome state. .
The Internals
What’s it mean?
It was all about the green Tuesday and I’m not talking about the Grinch, who did not come to spoil Christmas for investors/traders. Indicators were bullish all session long, taking off from the start and never looking back. TICKS you can see were super green all day, hardly any sell programs to see. VOLD and ADD finished at their highs of the session, a rare feat recently. VIX plunged and finished well below the 200 ma, but that plunge may be given back some this week, starting today.
The Dynamite
Economic Data:
- Thursday:Jobless Claims
- Friday:Trade Balance, Retail and Wholesale inventories
Fed Watch:
Did the Fed cause the Wednesday drop? Probably not entirely to blame, but certainly the Chairman did reiterate the committee’s distaste for sticky inflation. Friday’s PCE may have changed that thinking, but still the committee is going to be overly cautious and not be forced into a rate cut cycle that stimulates inflation any longer. Growth is still good, GDP revision up to 3.1%, so nothing wrong with the economy.
Stocks to Watch
VIX – A monster move up last week and right back down, but there is more decline likely into the holiday. Don’t forget, we often see volatility drop into the holidays, half day trading Tuesday and day off Wednesday.
Retail – This is IT for Christmas shopping, only two days left and then it’s over! But not really, we often see more buying happen after Christmas (sales) and then those gift cards get redeemed, often in January.
Bitcoin – It has been on a wild ride the past couple of months, if it can settle in around 90-100K for a month or so and actually become ‘boring’, we might see this crypto really take over in the first half of the year.
