The Fuse
Equity futures have a nice bid this morning with some backing of a fall in the VIX, which may help push the markets higher or at least hold the early pre-opening gains. Stocks have been down for 4 days straight and are mildly oversold, Fear/Greed index reflects extreme fear at the moment, perhaps a nice contrarian sentiment sign.
Interest Rates are up slightly after yesterday’s big move down in yield, call it the safety trade. Long bonds got a nice bid yesterday as the 10 yr yield fell below 4.3% for the first time since it was rising in December. That might help give stocks a boost. Still, Fed futures seeing only one rate cut this year.
Stocks are trying to turn it around this morning and have some tailwind behind them. European names were up nicely, the STOXX higher by .5% paced by gains in France and Germany. The US dollar climbed .1%. Gold is battling back as is silver, crude is barely changed. German 10 yr bund yields are up 1bp why US 10 yr treasury yields are higher by 2bps. In Asia stocks were mixed, Japan down .2% with a strong gain in Shanghai and Hong Kong, up 1% and 3.3% respectively.
Earnings were strong last night from Axon, the stock is ripping higher today after the company provided strong guidance. Cava backed away some after some cautious tone, First Solar missed but is not being punished for it (yet). Workday had a nice beat and raise. This morning Lowe’s beat following yesterday’s strong report from competitor Home Depot. Tonight is a big one with NVIDIA, Salesforce, Snowflake, AI and Nutanix.
We have reached the point of four days down in a row, for most of the indices. That is not rare but it would be hinging upon rare feats if the down sessions keep going. The problem here is we cannot seem to get to a good oversold condition for the entire market. At some point that might happen but with the Industrials showing good strength all day, breadth positive and even the small caps performing better, it seems buyers are still lurking, and a flush is what is needed.
Breadth was positive on a day when the SPX and Nasdaq were both hammered mercilessly. That is surprising to see strong breadth on a day like that, so we’ll consider that a positive divergence at least for a day. Without much of a catalyst to drive prices higher the breadth was clearly oversold, oscillators are still negative but the NYSE actually rose up, the Nasdaq is flickering to an oversold reading.
It was distribution all around Tuesday save for the Industrials, which rallied on lower turnover. It was the heaviness in turnover by the Nasdaq that should concern the bulls mostly, This index provided great leadership over the past couple of years, especially with those Mag 7 stocks but now that seems to be fading away.
If the economy starts to stumble we’ll have plenty more distribution days to come.
A good probe down by the Nasdaq and SPX 500 on Tuesday. The latter tagged the 5908 level and finished above the key 5,950, which is very good support. Below there as mentioned yesterday lies 5,870, very strong support but if that breaks then 5780 and 5,700 is up (200 ma). The Nasdaq landed right on the 50 ma but there is better support about 1000 points lower at the 200 ma, which looks like a strong possibility.
The Internals
What’s it mean?
The Internals really did not reflect the action of the day, in fact they did not look all that bad. Ticks were mostly green, especially on the NYSE while ADD climbed and the VOLD was left behind. TRIN went high as a result of those two diverging, put/call is still elevated and big money continues to buy puts. VIX charged higher but closed well off its highs of the session.
The Dynamite
Economic Data:
- Wednesday:new home sales, Atlanta Fed’s Bostic
- Thursday:jobless claims, durable goods, GDP 2nd look, pending home sales, fed speakers
- Friday:personal income/spending, PCE, inventories, Fed speakers, trade balance
Earnings this week:
- Wednesday:LOW, NRG, AAP, YOU, STLA, NVDA, SNOW, CRM, AI,JOBY, IONQ, ROOT, NTNX
- Thursday:VST, NCLH, TD, OPRA, SOUN, DELL, ACHR, CLOV, SMR, DUOL, RKLB, OPEN
- Friday:FUBO, WULF, GTLS, AES, FRO, BFLY APLS
Fed Watch:
Recent comments from Fed speakers indicate their reluctance to bring rates down further. After 100bps of cuts in 2024 the committee is now worried inflation is going to reignite. They have been concerned about rising core prices and also how the new administration’s tactics will work. To be sure, inflation is not going away, Michigan sentiment on inflation expectations ballooned to 4.3% in 2025.
Stocks to Watch
NVIDIA – The last of the Mag 7 will be reporting earnings, this comes out Wednesday evening. Plenty of worry and concern but it may be priced in. I can’t imagine they will say anything negative and may boost guidance once more.
Volatility – We again have our eyes focused on the VIX, which spiked on Friday and is now threatening a move into the 20’s. A little volatility is fine to set up nice opportunities, but if it starts trending higher then this market uptrend is in jeopardy.
Retail – Some big retailers out this week including Lowe’s and Home Depot will give us a nice picture of how the consumer is holding up after the holidays.
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