The Fuse
Equity futures are moderately lower this morning in a continuation of the recent selling. Stocks are looking at three straight down days during a seasonally weak period for the markets.
Interest Rates are flat this morning despite rising up the prior day. There is a pushback up in rates after the market has decided the Fed may actually mean what they say. Rate cut odds have been lowered sharply, the market now expecting four cuts in 2024 and mostly on the back end of the year. The Fed is still at 2-2.5 cuts, we’ll find out more later today perhaps when the meeting minutes are released from January’s session.
Not much in the news but earnings will be a big topic of discussion as NVIDIA reports their quarter later tonight. The stock has been on a roll this year and is now the third biggest company in the world by market cap. That is impressive, NVIDIA is up more than 40% this year alone. Oil prices are modestly lower, gold is flat. Last night it was announced that Amazon would be joining the Dow Industrials, replacing Walgreens.
Will NVIDIA save the day? I’m not so sure. They will tell us more about AI and its impact. Palo Alto gave us very poor guidance last night but TOL did beat and raise. Upstarts Solar Edge and Teladoc were bludgeoned after the close as they provided poor guidance, that has been the theme this season. This morning good earnings from ADI and Wix but a miss by Vertiv.
In a near repeat of Friday stocks were heading lower from the start of the sessions and never were able to make it into positive territory.
That is not common following a down session into a long weekend, but this may be a change in character that no bull wants to see. If the dip buyers refuse to show up then there is trouble ahead, no catalysts to send stocks higher and if inflation ticks higher the Fed may not be going anywhere with monetary policy.
Breadth was poor again and is now on a sell signal, though the oscillators are clinging to positive territory. There was nothing pretty about yesterday’s session, as we’ll see below the TRIN has started to move higher, telling us more volume is starting to come into these selling days. A red flag warning.
Not quite a distribution day, close on the Nasdaq but it volume was certainly elevated enough to raise some concerns. The higher turnover is reflective of the big money exiting the scene, and while many in the markets are fixated on names like NVDA, SMCI, AAPL or interest rates, we may be at the point when a corrective move is about to occur.
After failing to hold above 5K yesterday the SPX 500 is now looking for support, and may find it around 4,950 (20 ma). That was nearly the low yesterday but looking even lower there is the 50 day ma at 4,821. If that 20 ma does not hold in place and/or rates start rising stocks will start falling sharply.
The Internals
What’s it mean?
Back from the holidays stock traders were in no mood to be buyers. In fact, the sell button was hit pretty often as breadth was poor and the Russell 2K was to blame. Notice the VOLD and ADD, negative again and pointing towards their lows of the day. Not good for the bulls. VIX is starting to make a move higher, something we need to watch closely, ticks were heavy red one more time, that tells us a large amount of sell programs all session long.
The Dynamite
Economic Data:
- Wednesday:FOMC meeting minutes, mortgage apps
- Thursday:jobless claims, PMI Flash, existing home sales
- Friday:N/A
Earnings this week:
- 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.