The Fuse
Equity futures are up modestly across the board as markets brace for the last fed meeting of the year. The committee is expected to cut rates one more time and adjust policy with a more dovish stance, but going forward that policy is in question. Inflation is still not at target and could be rising faster than expected, rate cuts might fuel more inflation.
Interest Rates are rising slightly today as traders position themselves in front of the Fed meeting and projections on Wednesday. The 10 yr yield remains stubbornly high and is not moving as one would expect if the fed is cutting, perhaps they are seeing a one/done for this next cycle. Fed futures see about a 90% chance of a cut Wednesday, spreads are tight for high yield and that reflects bullishness for the economy.
Stocks in Europe declined a bit, down .1% on the STOXX as France led the index lower. FTSE was flat, as was Germany. The US dollar index was also flat, Gold down slightly, silver of 1% while crude oil is now below $60. Yields in Germany and the 10 yr US treasury rose a bit, Japan, gained .2% but Hong Hong Kong down 1.2% and Shanghai off .5%.
Earnings are in the last couple of phases for Q3 earnings but are nonetheless important. Names like Oracle, Lululemon, Broadcom, Adobe, Costco RH and Synopsis will report this week and likely help move markets.
Stocks were up for the 9th time in 10 sessions on Friday but under the hood the quality looks poor. Internals were weak and the statistics on this recent rally seem to infer buyers are getting exhausted. That means a pullback of some size might be coming but since we are in a seasonally bullish period that may not last for too long. Some big news coming this week and we will have a monster expiration day coming in a couple of weeks.
Breadth was poor as the bulls seem to be getting tired here. No question some are a bit hesitant to make a commitment before this week’s Fed meeting, but still we are in a seasonally bullish trend, and that means dip buyers are active. That may not last into January but those trends are strong this time of year, especially when the market is higher. Oscillators still positive, new highs are on an intermediate buy signal.
Volume was mixed as the IWM logged a distribution day but the SPY and QQQ were higher on better volume, hence a day of accumulation. There have been some nice clusters of accumulation the last couple of weeks, we’ll see if that continue to the end of year and the Santa Claus Rally period.
Support levels continue to be seen much lower than current levels, but the short term 8 and 10 day moving averages are acting as good levels to bounce from. The IWM is really intriguing here after a monster rebound off the 100 day moving average.
The Internals
What’s it mean?
Tough day for the internals. Stocks were mostly higher but end of day these indicators just collapsed and may be a clue into what happens this coming week. The VOLD finished poorly, ADD down but the VIX also lower, at a dangerously low 15.6%. That is often where we see vol buyers step up. Sell programs all session long but they did not seem to bother price trend, but that won’t happen for too much longer. Put/calls also dangerously low here. A pullback is coming soon enough.
The Dynamite
Earnings this week:
- Monday:TOL, MAMA
- Tuesday:CPB, SAIL, AZO, ASO, OLLI, KFY, FERG, GME, CBRL, CASY, PLAY
- Wednesday:CHWY, PLAB, REVG, DAKT, ORCL, ADBE, PL, ASYS,NDSN, SNPS
- Thursday:CIEN, LOVE, MANU, VRA, AVGO, LULU, COST, RH, QX
- Friday:JCI
Economic Data:
- Monday:n/a
- Tuesday:JOLTS, NFIB optimism
- Wednesday:Fed decision, press conference, employment cost index
- Thursday:jobless claims, trade deficit
- Friday:wholesale inventories, Fed speak
Fed Watch:
The big meeting all have been waiting for is finally here, the last Fed conference of the year. Fed futures are expecting a rate cut on Wednesday and in all likelihood that will happen, but it’s the statement and the press conference that will be even more important. Further, economic projections will be out, the latest views of where policy, gdp, inflation and unemployment will be down the road.
Stocks to Watch
Volatility – The VIX shows high complacency right now, the market is ripe for a rip lower. Volume trends are good, dip buyers may be active again on the next move down.
Oracle – Earnings this week from this mega tech name, many have been watching this one closely after a monster move up in September. The stock has now lost most of that move and momentum seems to be building to the downside.
Retail – Strong retail numbers from a few companies lately has the bulls optimistic about this group. However, few and far between, we’ll hear from lululemon and a few other retail-related names this week to see how the consumer is doing.
