The Fuse
US equity futures are dipping lower after the long holiday winds up. This is a short week of trading but packed with plenty of information to move markets. This could be a good dip buying opportunity for the remainder of the week.
Interest Rates are down modestly this morning as investors flock towards safety. Equity markets are up strong for the month and if investors/traders decide to take some chips off the table then equity risk become pronounced. Given the higher yields in bonds at this time there is no surprise some investors are snapping up bonds here.
Stocks in Europe were modestly lower, the dollar up slightly as is gold. Crude oil is back below $78 per barrel as the market watches tensions in the Middle East. German bond yields are bit lower in a ‘risk off’ trade overseas. Stocks in Asia were mixed as the China markets came back online after a weeklong holiday. NVIDIA earnings will be out later in the week and may influence markets at week’s end. Volatility is elevated this morning. Capital One has agreed to buy Discover Financial.
Earnings from Walmart and Home Depot were strong and beat estimates though the latter had weaker same store sales. These stocks often run up prior to earnings as the market expects perfection, if not they get slightly punished. Walmart is higher but Home Depot is losing some ground. Later tonight we’ll hear from Palo Alto Networks, Caesars, Toll Brothers while tomorrow we have Analog Devices, WIX, WingStop and HSBC among others.
Stocks were pounded again Friday following a pretty hot inflation report. The PPI came in with much higher numbers than expected and that lifted interest rates. Small caps were hammered most of the day as was the breadth, that took down the markets over the last ninety minutes. We’ll see if the bulls can mount a recovery.
Breadth was extremely poor Friday but is clinging to a buy signal. Coming off two straight days of solid breadth gives this indicator some breathing room, but not much. Cumulative breadth hit a new high when the SPX 500 did as well, that’s a positive sign for the bulls. New highs remain very healthy as they continue to expand, also a good sign.
A distribution day for the indices as higher volume to the downside was the story. One day does not make a trend of course, but an accumulation of these down sessions on high turnover would be troublesome for the uptrend. Certainly this can be rectified with a few accumulation days, and that would mean stocks heading upward again. Key week is coming up.
Stocks have been under some pressure this week but that 5K level held on the close for the SPX 500. Pretty significant, considering the big beating the markets took on Tuesday. Buyers came back later in the week but were exhausted following Thursday’s rally and decided to sell into the long weekend. 17.500 is good support for the Nasdaq, 4,900 on the SPX 500 and then 4,850 are solid support zones.
The Internals
What’s it mean?
Tough day for the bulls as they could not ever get the engine started all day Friday. The VOLD tried to go positive as did the ADD but the sellers were simply to much to handle. Ticks were red most of the day while the VIX started to rise up.
The Dynamite
Economic Data:
- Monday:N/A
- Tuesday:China data
- Wednesday:FOMC meeting minutes, mortgage apps
- Thursday:jobless claims, PMI Flash, existing home sales
- Friday:N/A
Earnings this week:
- Monday:N/A
- Tuesday:AWI, DAN, HD, WMT
- Wednesday:ADI, WING, CAKE, BROS, JACK, NVDA, DOC, RIVN
- Thursday:BLDR, KDP, ALRM, SQ, RKT, OLED
- Friday:BLMN, SSP, WBD
Fed Watch:
FedSpeak the last couple of weeks has been trying to push the market towards more conservatism on monetary policy, but that hasn’t worked out too well. But the data this past week finally shared their sentiment, which is be mindful of excessive inflation, and we will only start cutting rates when inflation starts to fall towards our target. The CPI/PPI clearly tell us that is not happening now. Fed funds futures have backed off a bit and are not seeing 5 rate cuts for 2024 any longer.
Stocks to Watch
Interest Rates – After last week’s very hot inflation readings for January all eyes will be on rates this week. Without much to push rates higher we’ll see if bond buyers come back during this shortened trading week.
NVIDIA – Wednesday is the big day for this semiconductor company, which is now the third most valuable stock in the world. As NVDA goes so goes the rest of the market for the remainder of the month. Will it be sell the news or something different?
VIX – We have seen a slight uprising in volatility the last month or so, just very subtle. It is similar to the move a couple of years prior before a sharp rise up. Was last Tuesday’s moonshot an anomaly or the start of something bigger? The next several days will test out a theory.