The Fuse
Equity futures are getting slammed following heavy inflation numbers in Europe along with weak Chinese economic output. Yesterday’s drop puts the markets near oversold levels in the short term, but buyers remain absent. Perhaps a late week rally might save some ground but for now there is little reason to buy the dip.
Interest Rates are rising as bonds are being sold this morning. Perhaps the market is finally coming around to the Fed’s way of thinking, rates not coming down as fast. We see Fed funds futures starting to shed the aggressive rate cut expectations of the market now.
Stocks remain on the defensive side as sellers continue to take profits following a strong 2023. In addition, strong data like retail sales this morning are going to boost 4th quarter GDP estimates, and further distance the Fed from an aggressive rate cut stance.
Earnings from some banks yesterday were good but not great, so we have some give back from this group. Later today will hear from Discover, Alcoa and HB Fuller while tomorrow some regional banks are on the docket.
It’s a short week of trading as Monday markets were closed for holiday. However, a big expiration week is upon us as LEAPS will expire this coming Friday on the close.
Breadth was atrocious again as this indicator is clearly on a sell signal. Stocks barely made a move up though some in tech land did see a rise, like NVDA and AMD. The broader market however was weak especially small caps, which are weaker when rates rise as they are currently doing.
Volume rose up sharply and delivered another distribution day for the indices. That is the 4th one since the start of the year. Is that something to worry about? At this point no, but certainly something to watch out for if there are a series of distribution days in a row, which is professional selling.
The trading range is alive and well, continuing to move between 4650 and 4800 on the SPX 500. What is more concerning though is the poor action in the Industrials and small caps, which led the markets higher at the end of 2023. They are starting to lead the markets lower this month with plenty of selling, the charts are starting to roll over.
The Internals
What’s it mean?
The internals were bad, right in line with the market action. Look at that VOLD, just straight down and weak all day long. The VIX rose up a but and is now threatening to break 15%. Ticks were clearly on the bearish side, see the concentration of red arrows, that is pure selling with heavy programs. Put/calls are rising and are on a sell signal, too.
The Dynamite
Economic Data:
- Wednesday: Retail sales, IP/cap utilization, Biz inventories, housing market index
- Thursday: Jobless claims, housing starts, crude inventories
- Friday: Existing home sales, Michigan consumer sentiment
Earnings this week:
- Wednesday: SCHW, AA, DFS
- Thursday: AAL, FAST, TSM, JBHT, PPG
- Friday: ALLY, CMA, STT
Fed Watch:
Some outspoken Fed speakers were out last week preaching the gospel. The biggest message sent was their belief markets are being to aggressive with expected rate cuts, how many and how soon. The latter is of course based on the data while the former is also based on the data and how a reduction in inflation happens to coincide with a slowing economy.
Stocks to Watch
Financials – Friday was a hint of how bank earnings may hit this season: missing on the top line and beating on the bottom line. Plenty to digest this coming week.
Volatility – We’ll again be watching the VIX as it moved down below 13% once again this past week. That sort of complacency is often paid back following a holiday-shortened weekend.
Gold – The yellow metal had a strong Friday after some turmoil arose in the Red Sea area. We often see gold rising when such issues occur, and the metal is within spitting distance of new all time highs.