The Fuse
Equity futures are rallying this morning after a few days of getting beaten down. Traders are not waiting for the January NFP to be released to put a bid into the markets, but realize there could be some vulnerability if the report shows inflation and slowing job growth.
Interest Rates are steady this morning, slight lower on the long end of the curve. Fed funds futures moved sharply yesterday, now with March looking to a 17% chance of a cut (it got up to 23%). If jobs are weak that number will increase. The prior day it was a 9% chance of a cut. High yield spreads remain very tight, no sign of recessionary pressure on the economy based on these yields. 30 year yields remain stubbornly high, ticking near 4.8%.
After getting punished early in the week stock are bouncing back a bit. STOXX in Europe was flat, France down modestly while FTSE also lost ground, .3%. The dollar index fell again, off .1%. Gold is up modestly and silver is down slightly after another wild overnight session. Crude oil slightly down. 10 YR US treasury yields jumped 1bp, German 10 yr bund yields off 2bps, in Asia stocks were up in Japan by .8%, Hong Kong fell 1.2% and Shanghai off .3%.
Earnings last night from Amazon was very good but they stock is down today for some reason. Guidance may have been light but this seems like a buying opportunity here. Solid earnings from Roblox and Reddit, Bloom Energy beat while Microstrategy may see its first up session in awhile. Today good earnings from CBOE and Biogen along with Toyota.
Heavy selling from the start as Bitcoin fell precipitously below 70K and just keep rolling down hill, bring the rest of the markets with it. The collapse from the highs has been epic, and while there is a chance for a massive bounce back the damage to this crypto is quite painful to investors/traders. Gold/silver were whacked as well as leveraged plays are not a priority with this volatility. No surprise to see a bit of selling but it is getting intense, especially in the software area.
Finally we saw the indicators and internals line up with the markets, but it wasn’t what the bulls had in mind. No question Thursday was characteristic of heavy selling. New highs on the NYSE are killing new lows but if you go to the Nasdaq the story is different. More than 400 new lows in the Nasdaq yesterday, worst readings since April of last year, and those numbers were crazy low. Oscillators are negative and heading even lower, the NAMOT at -245. Ugly.
Heavier turnover on the Nasdaq and SPX 500 means we have distribution. This means institutional or professional selling, the big money is stepping aside. You need to be aware that we have had clusters of distribution, and that means there will be more heavy down sessions until we reach a maximum oversold. That could be any day now but the damage from all the selling is going to be palpable.
The Nasdaq is in freefall here and where it stops, nobody knows. Logically, the 200 day moving average is a good target, but that would be down another 4%. Already the Nasdaq has broken the December lows, which is already bad news. The SPX 500 is on its way as well,, the 6725 level needs to be watched carefully. Small caps are safer but not much, the IWM fell to the 50 day moving average, it will have a tough time if that level is penetrated today.
What’s it mean?
That was some good old-fashioned selling yesterday. From the open the VOLD just headed straight down, nothing was going to save it, not even a modest drop in the VIX. That indicator is moving higher, closing above 21% as some real fear is starting to show up. ADD and ADSPD were lower but not extreme, TICKS were heavy red all day long, especially on the Nasdaq. Bottoms are not often made on a Friday. Use caution here.
The Dynamite
Economic Data:
- Friday:NFP for January, wages, consumer sentiment, consumer credit
Earnings this week:
- Friday:CGC, ROIV, CNC, CBOE, BIIB, NVT, UAA, TM, AN, PAA
Fed Watch:
The committee managed to get by last week without cutting rates and seemed to have done the right thing. There is little doubt now that inflation is still a problem and lower rates will only magnify the problem. Next cut expected in June, but that will have a new Fed Chairman as well.
Stocks to Watch
Precious Metals – Was Friday’s pasting just a fluke or profit taking? It’s hard to tell but more downside is certainly going to be bearish.
Amazon and Alphabet – Two more Mag 7 names reporting this week, we’ll see if they move into the Meta camp and give investors something to shout about.
Bitcoin – The big crypto has fallen hard of late and over the weekend tested a breakout level of 78K. If that does not hold firm and find buyers there is a long way down, and much of the market may go with it.
