The Fuse
Equity futures are rallying modestly this morning following the nice rebound from Tuesday’s wreck. A nice bid in the market so far but that can change following the release of important data pre-market. We’ll get the retail sales and jobless claims, two important pieces for the economy.
Interest Rates are dipping back down this morning as bond buyers snap up cheap paper following Tuesday’s big drop. The yield curve expanded quite a bit early in the week after the hot CPI number but is now coming back into alignment. If the 10 year falls back below 4.25% we could see a nice rally in small caps leading the rest of the market higher.
US stocks are trying to erase big losses from Tuesday and it has just about happened. The big rise in volatility was excessive as volatility sellers were back to doing their thing. Oil futures are down modestly while gold is ticking up. The euro has been weaker of late following the moderately hawkish statement from the Fed last week. The dollar remains strong. Two more trading days before a three day weekend.
Earnings last night from APP and FROG were pretty strong but Cisco disappointed again on the guidance as did Twilio. HubSpot beat and guided up modestly while Fastly was a very bad report. This am saw strong earnings/guidance from CROX but weak guidance from Deere and Yeti. Tonight brings us DraftKings, Roku, Coinbase, Applied Materials and DoorDash.
After a devastating session Tuesday markets bounced back briskly but still fell short of making up those losses. Volume was strong Wednesday and pulled away late in the session in a continuation of Tuesday’s late session pull up. The action was good across the board with large and small caps contributing to the day. It was a good move overall as volatility subsided as is often the case before a holiday weekend.
As bad as the breadth figures were Tuesday Wednesday was just the opposite. Solid statistics across the board with the NYSE count being better than 4-1 positive. That’s a good sign but as usually some followthrough would be really important for the bulls to see if this latest drop was just a blip on the screen or something more severe in the works.
Volume was turned up these last couple days with some really heavy concentration of selling on Tuesday followed by some swift buying on Wednesday. That seems to be the pattern of late; a sharp selloff followed buy some crisp, new buying then onto a new high. If that pattern continues then next week might the time we see a breakout one more time.
That nasty move down Tuesday just barely touched support as the buyers came into pick up the pieces. On a net basis the SPX 500 has lost 20 points over the last two sessions, not even 1/2%. That does not mean volatility is latent, in fact the wide ranges should be a warning sign that more up/down action is likely. Resistance on the SPX 500 is at 5150 while downside is at 4900 and then 4850.
The Internals
What’s it mean?
After the beating on Tuesday we were looking for some better readings by the internals yesterday, and they delivered. Look at the TICKS, which showed heavy buy programs all day long, that is a positive sign for the rest of the week. VOLD finally got moving end of day, the VIX was pounded from the start and finished near it’s lows. ADD was solid and in the green. One more day like this and the bulls will have a run on their hands.
The Dynamite
Economic Data:
- Thursday: Jobless claims, retail sales, IP and cap utilization, import/export prices
- Friday: PPI for January, housing starts/permits, Michigan sentiment preliminary
Earnings this week:
- Thursday: ARCH, DE, HBI, IDCC, SHAK, WEN, AMN, AMAT, DLR, IR, ROKU, SKT, TTD
- Friday: AXL, THS, VMC
Fed Watch:
We heard from several Fed speakers this past week, most notable of them was Rafael Bostic from Atlanta, a voting member who seems to believe inflation is on the right track heading downward. Further, Lorie Logan from Dallas Fed believes the committee needs to see more data before entering a rate cut mode. Clearly the members (others too) are being a bit more conservative, not a bad idea at this juncture and with the markets being more aggressive about rate cuts.
Stocks to Watch
VIX – Once again, we have a three day weekend coming up and we often (not always) see a big drop in volatility before then. This week’s action may be softer to start the week but the markets are not all that overbought either, so a bit of rallying might occur as well.
Inflation – We have the January readings of CPI and PPI this week along with retail sales. The Cleveland Fed Nowcasting is calling for a 1.5% annualized gain on the top line but core still a bit hot at 3.9%. If the numbers come down we could see a sharp market rally.
Small Caps – The Russell 2K has been the laggard so far this year, but had a nice jump towards the end of the week. If this was simply short covering then the IWM will go back down, especially if rates are on the rise.