The Fuse
Equity futures are slightly lower this morning as traders remain vigilant before the next Fed decision. All eyes are on the Fed this week but after Wednesday we can push past this event and start looking towards end of year bullishness, which is common this time of year.
Interest Rates are moving lower as fixed income investors position for a drop in rates tomorrow. The funds rate is likely to drop, but long term rates are now trading at the higher end of a range, so we could see the 10 yr and 30 yr yields start to move lower. High yield remains robust, fed funds seeing a cut tomorrow but a January cut is still undecided.
Stocks were up slightly in Europe, higher by .2% on the STOXX while FTSE lost .1%. In Japan, the Nikkei climbed the same amount, Hong Kong down sharply off 1.3% while Shanghai down .4%. gold is slightly higher, silver up by 1.7%, crude oil is down modestly. Bund and US 10 yr treasury yields higher, the dollar index flat.
Earnings from Toll Brothers last night were challenging, of course with higher rates that makes sell through of inventory rather difficult. Campbell’s this morning had good earnings but revenue fell, AutoZone had good numbers but missed the bottom line, Ollie’s is down as well on poor guidance.
A wicked selloff from the start of the Monday session was never bought up by the dip buyers, but perhaps today will be a different story. The last Fed meeting of the year gets started today and it could be a contentious one. No doubt the hawks and doves will dig in their heals and present their position, the markets are looking for a cut but maybe some balance in the statement (wait and see).
Poor breadth from the start as the sellers really let go this morning and all day long. Buyers just did not show up yesterday, and that means oscillators are going to head lower. Perhaps traders are worried and concerned over the Fed decision and how the market will respond. We have come to expect volatility along with a fed decision, but this one may be a bit more important than other recent meetings. New highs still with a sizable advantage over the lows.
Lower turnover is not uncommon during this month and especially in front of a fed meeting and some important data. After this fed meeting expect even lower turnover in the days ahead, until perhaps later in the month when funds start to re-balance and re-allocate funds from fixed income to equities and vice versa. We often see large ‘orders to buy’ that last for days.
If the market is ready to correct and test lower levels, now is the time for it to happen. We have not seen too many down sessions since before Thanksgiving, as the indices have pulled further away from the moving averages. Some sideways work would be fine to let the moving average catch up to the current price. However, expect some volatility and then a release after the fed decision.
The Internals
What’s it mean?
Another crappy day for the internals. VOLD slid more as did the ADD, the TICKS were super red all day, reflecting a large amount of sell programs. VIX was up, not unusual in front of a fed meeting, while put/call did move lower. It’s wait and see mode for the indices here, can the internals improve without market participation to the upside? Not likely, but the tail is wagging the dog here.
The Dynamite
Earnings this week:
- 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:
- 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.
