The Fuse
Equity futures are mixed with the Dow Industrials down modestly but the SPX 500 and Nasdaq flying through new all time highs. The Nasdaq is ticking above 18K for the first time ever. News out on the PPI will give traders something to chew on before the start of the long weekend.
Interest Rates are rising up slightly as the market awaits an important reading on inflation. The 30 year is up modestly as is the 2 a and 10 year yield. These bonds were trounced Tuesday morning following a surprisingly hot CPI number so we have to be prepared. Yet, there is a nice bid in the markets so far from overnight so the markets may just take this one in stride and cruise into the long weekend. Thursday’s retail sales were poor and helped push rates down during hte session.
New all time highs (save for the Russell 2K) are all the rage in 2024 and that makes us rather nervous. Sentiment is starting to gain momentum on the bullish side of things and when that boat gets full it often tips over. Oscillators are approaching overbought, a few more strong sessions will put us there. We have not seen a new high in cumulative breadth, something that often calls for new price highs so that is a divergence to watch for.
Earnings last night was a hit parade. DoorDash beat and so did Roku and Yelp but all three provided weak guidance. On the other hand, Applied Materials and Coinbase are injecting some bullish juices into the markets with strong earnings and forecasts. It seems the NVDA cloud continues to rain upon the rest of the market related to AI or bitcoin.
All is right in the world when the markets produce back to back winning sessions. I’m being sarcastic of course, ummm…well, just a little bit. Bulls really took control of the market from the start and pushed the SPX 500 index above those losses from two sessions ago. It’s quite stunning how much and how fast the indices move these days, but there is a relentless bid in the market right now that needs to be fed, and that feeding is the bears – for now.
Strong breadth two sessions in a row was a huge accomplishment, we had not seen that happen since late January. So, this indicator is now on a buy signal but oscillators are pretty ripe at the moment. Any further upside is going to push the envelope. The most recent rise up was not accompanied by very high oscillators so we did not have a massive correction ensue. But, higher numbers now put that scenario on the table.
Pretty strong turnover again with the bulls again winning the day. Volume based on up/down issues was skewed higher, and that bodes well for continued upside. Given the challenges recently of poor volume to the upside it is a welcomed sight for the bulls to see strong turnover with better breadth and price action happen on the same session.
With another close above 5K for the SPX 500 we look for support at Tuesday’s reversal area, lo’ and behold that is 4,920, an area we spoke about prior. Below there we have 4,900 and 4,850 for a deeper correction, that would worry many bulls but would just be a modest pullback. A deeper correction might that the SPX 500 down to 4,600 and still have the uptrend in tact.
The Internals
What’s it mean?
Pretty strong internals all day long but really pushed higher towards the end of the day. The bears just gave up as the bulls have no fear leading into today’s PPI release. The VOLD finished at the highs of the day while the ticks were again nicely green all session. We mentioned yesterday that was a hint towards a strong day and that was correct. VIX headed down as we often see before a holiday, ADD finished higher. Another strong session puts the market in overbought condition.
The Dynamite
Economic Data:
- Friday: PPI for January, housing starts/permits, Michigan sentiment preliminary
Earnings this week:
- 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.