The Fuse
Equity futures are mixed as the SPX 500 and Nasdaq are higher while the Industrials and Russell 2K are slightly lower. Stocks are trying to battle back from a weak session yesterday as traders brace for another inflation release (CPI, PPI) to end the week. Remember, Monday is a holiday and markets will be closed, so often a three day weekend has volatility pressed lower into the weekend.
Bonds are slightly higher this morning as the 10 year flirts with 4%. Yesterday’s bond auction was poor and pushed interest rates a bit higher on the long end of the curve. The yield curve remains inverted but if the Fed starts cutting rates this year that might change to a flatter condition. The first cut is likely to come in May if the data continues to fall their way.
Bitcoin was in the news as an errant tweet was delivered after the market close stating a spot ETF had been approved. the SEC commissioner denied this saying their site was hacked. Cybersecurity is here to stay. Oil is up a buck this am while gold is fractionally higher. There has been a widespread move in markets so far in 2024, when tech is down other areas seem to be strong. Hence, money is flowing around equity markets and finding a home.
Breadth was horrible Tuesday, complete opposite of Monday and now this indicator has flipped to a sell signal. This has been the case often since late 2023 so we are not surprised. However, a few more down days like Tuesday could set the table for more selling to come before next week’s option expiration day.
Volume levels were lower than the prior day and that’s fine when the market is lower. A bigger volume day would be distribution or professional selling, and potentially set up a big change in trend. That’s not happening yet, though we would like to see a bit more turnover in the coming days, and we may get it with economic data releases tomorrow and Friday.
The SPX 500 did manage to hold at good support yesterday but just could not get above 4765 on a close. That is now setting up as strong resistance. We still see good support at the recently tested 4,700 while the Nasdaq shows strong support at 16,250. Plenty of news this week to move markets.
What’s it mean?
Much different than Monday. The internals tell a mixed picture with the VOLD straight down and the ADD struggling all session. The VIX on the other hand was pretty sedate and cruised down below 13% again, a dangerous level. TICKS were also mixed showing buy and sell programs evenly distributed all session long. A bit of consolidation is not bad as we figure out which direction the market turns before earnings season commences.
The Dynamite
Economic Data:
- Wednesday: Wholesale Inventories, Mortgage Apps
- Thursday: CPI, Jobless claims
- Friday: PPI
Earnings this week:
- Wednesday: KBH
- Thursday: INFY
- Friday: BLK, BK, C, DAL, JPM, UNH, WFC, BAC
Fed Watch:
The release of the prior meeting’s minutes last week struck a tone of cautious optimism. On the one hand, the committee seemed pleased with the trend of inflation coming down and acknowledging their strong rates have been working. On the other hand, they dismissed the ‘all clear’ signal completely, preferring to err on the side of caution even as the economy starts to slow down. They introduced the idea of rate cuts in 2024 but refused to say when, keeping with their style of waiting on the data. This week might have some member talking down the rate cut expectations set in futures markets.
Stocks to Watch
Oil – Crude oil has been creeping higher of late in response to turmoil in the red sea but also likely due to more supply constraints.
That will keep a nice bid under crude as we see WTIC make another run towards $80. The chart is getting bullish here.
Banks/Financials – Friday is the first big day of earnings for Q4 and we’ll hear from some big major banks (see above). What they say about their business, credit, liquidity and financial conditions will be crucial. These stocks have run hard for three months so any bit of caution is likely to get slapped down.
Apple – A couple of downgrades this week following the end of the quarter has put Apple investors on their heels. In years past these pullbacks have been tremendous buying opportunities, is this going to be another one? The stock tagged the 200 ma on Friday.