The Fuse
Equity futures are soft this morning reflecting some cautious tones from overnight. The past couple of sessions in the US markets have been on low turnover and with little interest to carry stocks much higher. The SPX 500 did finish at a new high but other indices lagged badly. As a result, buyer exhaustion seems to be at hand.
Interest Rates are again modestly higher as bondholders slowly give back their holdings. The worry about inflation being sticky is very real and now the concern is it may rise up with new economic policies driving up prices. Fed futures have backed off considerably and may only expect one cut in 2025, that may be a reach.
US stocks are looking weaker at the open, in Europe the STOXX gained .1% as stocks across the pond rose, France and Germany leading the way. Gold is higher again and is pushing up towards 3K per ounce, silver is higher as is crude oil. The US dollar index fell .3%. German 10 yr bund yields fell 1bp, US 10 yr treasury yields off by 2bps and in Asia stocks were mixed as Hong Kong and Japan were down more than 1%, Shanghai was flat.
Earnings last night from Toast and Cheesecake Factory were good but the stocks may be lower after sharp runups into the print. Carvana beat as well but again the stock has been up 80% in about six months. Alibaba this morning hit one out of the park and is up sharply, we’ll hear from Walmart, Wayfair and Unity a bit later.
After reaching all-time highs on Tuesday following the long weekend we expected to see a bit of profit-taking occur, at least in the SPX 500 and Nasdaq 100. That happened, but the SPX was resilient and was grinding to another new all-time high on the close. That was impressive considering the poor technical condition of the day, bad breadth, higher rates and poor small cap performance.
Breadth was taking a break yesterday but this indicator is still on a buy signal. Even if the breadth is poor for another day we could see more upside but another few days of weak breadth would be a negative. Oscillators are still positive, new highs are still beating new lows.
Volume trends were suspiciously low yesterday. That’s not surprising at all-time highs, because many are expecting to see the markets fall and give an opportunity to buy. That doesn’t happen all the time, especially when the wall of worry is up highs as it is now. We should see more volume traded as we come to the end of options expiration.
It has been interesting to watch as the VIX goes lower so does the chance of a correction or pullback. We’ll have one eventually but it won’t be announced! The Nasdaq, with fresh new highs on Tuesday may be in sideways mode for a few more sessions, letting the moving averages catch up and then moving upward again.
The Internals
What’s it mean?
Not much followthrough from Tuesday according to the internals, in fact they don’t reflect much bullishness at all. Ticks were mostly red, ADD and VOLD were barely moving and the ADSPD was midpoint. Put/calls remain low but the VIX held in, which is showing high complacency. Could be some danger around the corner.
The Dynamite
Economic Data:
- Thursday:Jobless claims, philly fed, leading economic indicators
- Friday:Flash PMI, consumer sentiment, existing home sales
Earnings this week:
- Thursday:BABA, WMT, U, W, BAX, NICE, JMIA, SHAK, LNG, MELI, RIVN, XYZ, NEW, BKNG, TXRH, GH, FIVN, DBX
- Friday:ARR, ASIX, UNTI, BDC
Fed Watch:
HUGE week for fed speak, no less than 11 speakers hit the circuit talking about monetary policy, inflation, the economy and growth. Most have already intimated they do not see a cut coming anytime soon, though Governors like Goolsbee say that ideal could change drastically if inflation turns downward. Was this a temporary situation in January or something more sticky? The February readings next month will be an important read.
Stocks to Watch
Volatility – Once again the VIX fell hard into a long weekend, we often see that paid back quickly after traders return, which will be Tuesday. It’s been a bullish condition with VIX under 15% and below the 200 day moving average, but we know that news could change that narrative quickly.
Earnings – A lighter calendar of earnings this week but nonetheless important. We’ll be watching retail and tech names this week as the focal point.
Economic data – Mostly about manufacturing this week, but certainly important to find out if the economy is slowing and perhaps bigger layoffs are just around the corner.
