The Fuse
Equity futures are bouncing back this morning with a strong bid, we’ll see if it holds. Oil prices are down sharply as President Trump allays fears of an attack on Iran. We’ll see where this heads to in the coming days, a three day weekend is upon us.
Interest Rates are barely moving this morning, steady as she goes. The 10 yr remains stubbornly below 4.2%, high yield spreads remain very tight and are showing strength. Fed funds futures are flat and showing the next rate cut likely in June.
Stocks are rising after a positive session in Europe. The STOXX was up .3%, FTSE was flat, Germany and France negligible gains. Gold is off slightly as is silver, Nat gas higher by 3%. Stocks in Asia were lower, Japan off .4%, Hong Kong down .3% with Shanghai down the same. Yields in Germany and the US both up 1bp.
Earnings overnight from Taiwan Semi were strong, the stock is up nicely on the news. We’ll have earnings from MS and GS too, Blackrock came out with strong numbers.
Tough day for the indices, save the small caps which performed quite well. Given the fact rotation is on from technology to any other group there is some relief that money is not leaving the markets. Yet, oil prices are rising with some major geo-political concerns (Iran, Venezuela), and throw in the strong performances from silver/gold there is a reason the macro has many people concerned. Can earnings season flip the script and provide the bulls a tailwind? Perhaps.
Breadth was pretty solid yesterday, better than 2-1 positive, we can thank the small cap stocks for that good relative performance. No doubt the other indices are likely to follow suit, but perhaps before we hit the holiday weekend. Oscillators still positive but not quite overbought, new highs crushing new lows, and that is a positive sign.
Volume prints were pretty strong across the board, but only for distribution if you were not a small cap. The IWM also had better turnover so that was a notch for the bulls to own. A very tough day for the rest of the market, big cap names were under assault with a slew of sell programs all day long (more on that below). We’ll see plenty of high volume action into the end of the week as Friday is a huge expiration day, and Monday is a holiday.
Stocks moved lower and hit some support zones, levels we thought might hold However, those lows may get tested again, and then we could see a slew of selling down the river if the dam breaks. Testing lower levels is good and mandatory to keep a trend in place, keeps the dip buyers interested and active if the trend is bullish.
The Internals
What’s it mean?
Solid internals, but mostly attributed to the success of the small caps Wednesday. TICKS were strong the entire day, heavy buy programs all day long but futures could not muster any sort of rally attempt. VIX spiked early on but fell on its sword throughout the day, that bodes well if the markets rally into the end of the week. VOLD was very strong and ADD even finished on its highs of the day. We’ll call this a positive divergence, but prefer to have price joining the internals in the bullish party.
The Dynamite
Economic Data:
- Thursday:jobless claims, empire state, philly fed, fed speak
- Friday:industrial production, cap utilization, Barkin and Jefferson speak
Earnings this week:
- Thursday:TSM, MS, GS, BLK, BSVN, JBHT
- Friday:RF, STT, PNC, MTB
Fed Watch:
This is an important week for the fed, not for decision making but because so many speakers are out talking about fed policy and the economy. Seems the only one NOT talking is Chair Powell, but with so much division at the time it seems relevant to listen to every participant’s view and where they stand. The first meeting with some new voting members is end of the month.
Stocks to Watch
Silver and Gold – Again, the metals are on fire and pushed to highs last week. Seems the momentum is strong here and that could last for some time, pullbacks have been buying opportunities.
Crude oil – Since last week’s invasion of Venezuela the price of crude only rose up modestly. That should change soon, futures market sees higher prices soon and with any supply disruption that will happen quickly.
Banks/Financials – Kicking off earnings season are the big banks this week. Did they run too far? It’s possible, but earnings should be fantastic anyway.
