The Fuse
Equity futures are attempting to bounce back a bit from Thursday’s rough outing. It was an extremely volatile day until mid session when the gloves came off and the bears just pounded the bulls into the ground. Nothing was safe in this rout, hopefully that cleared some space for bargain hunters but there was some extreme damage to the chart.
Interest Rates are down again this morning, an interesting shift is occurring. It seems the bond market sees much slower growth coming, probably below trend and is starting to price in rate cuts from the Fed to stimulate the economy. Currently the December 2025 future now sees 2 1/2 cuts coming by year end, but with higher inflation still a problem it may be hard to swing it.
Stocks overseas were just hammered, taking their cue from the US markets. STOXX in Europe fell .8%, France and Germany declined about that much. The US dollar climbed a bit. Gold remains lower and is now below 2,900 while silver is also down, crude is off more than 1%. German 10 yr bunds fell 3bps while US 10 yr treasuries were down 2bps, stocks in Asia were sharply lower with Japan down 2.9%, Shanghai off 2% and the Hang Seng sliding 3.3%.
Earnings from Dell were a miss across the board vs expectations, that stock is lower. Duolingo was higher after a beat. We moving into phase 4 of earnings next, a few big names but much slower.
Just a miserable day for the bulls as strong support was taken out during the rug pull late in the day. There was no relief in the carnage, though in the early part of the session market volatility was certainly apparent. Stocks started up, sold off, rallied and sold off again in an erratic session. The one constant lately has been a lack of liquidity, and that stems from a lack of buyers in the market. One more day of February remains and that could tip the scales even further.
The breadth indicator remains on a sell signal, just awful action this week as the buyers are absent. Better than 2-1 is not a rout but that could be coming soon. This market has the feel that dip buyers need to pick up the pieces at each drop, but they are not active here. Once good support breaks the dip buyers disappear for awhile. Oscillators are solidly in negative territory, new lows are starting to trounce new highs.
Strong turnover yesterday as all of the indices ended with another distribution day. There have been several since the end of January, which simply means big institutional money is heading towards the exit door. That is really not surprising with such dour conditions, worries about the economy and higher inflation, along with policies that might not be too friendly to the markets. There will be some relief at some point but likely a bit more downside before then.
Well, there goes the last bit of support for the SPX 500 at 5870, but we’ll have to see if there is a bounce from there. Certainly the bears caught a nice break here recently with a lack of liquidity, flat curves and bearish sentiment. It appears SPY and QQQ have a date with their 200 day moving averages, and that could happen very soon.
The Internals
What’s it mean?
A major rout at the finish but it took a few hours to get the bears attention. Just an awful day across the board with the VIX hitting hiths and closing there, VOLD and ADD just miserable as they closed on their lows of the session. TICKS were mostly red all day long, Nasdaq ticks were a rout. Put/calls were higher too, indicating more protection being bought. Just not a good day overall.
The Dynamite
Economic Data:
- Friday:personal income/spending, PCE, inventories, Fed speakers, trade balance
Earnings this week:
- 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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