The Fuse
Equity futures are getting pounded this morning as word of a ‘tariff war’ has surfaced between the US and Europe. We talked many times recently of the high complacency that can get smacked without notice, this is one of those times. VIX is higher but not extremely elevated yet.
Interest Rates are moving higher across the board, rising from the 2’s to the 30’s as bond investors get outta the way of the verbal mess in Europe. High yield spreads are widening, these bonds weaker. Fed funds future not moving much, there is a meeting next week.
Stocks are cracking here after the three day holiday as Europe is leading the way down. The STOXX of a hefty .7% led by sharp drops in France and Germany. FTSE also down big, off .8%. The dollar index fell .2%, gold is ripping higher, up by nearly 3% and silver up 1.5%. Crude oil modestly higher. Yields are up as the news seems to spread inflation worries, German 10 yr bunds higher by 4pbs, 10 yr US treasury yields rising 6bps. Japan was down 1.1%, Hong Kong down .3% and Shanghai flat.
Earnings are center stage in this short week of trading. Monday was closed in observance of the MLK holiday. There are some big names to watch this week including 3M, Intel, JNJ, P&G along with Capital One, United and SLB. This is the appetizer to earnings season, the big guns are coming the following two weeks.
We heard over the weekend some tariff threats to Europe by the US if Greenland is not on the table. We’re not sure where this will lead but more uncertainty and doubt is going to increase volatility in markets. We have spoken over and over again about the need to have protection on at all time just in case something askew comes up. This is one of those times, and protection is rather cheap with the VIX settling under 16%.
Breadth was strong for a good part of the week but fell apart on Friday. This indicator has been strong of late and remains on a buy signal. Oscillators are still positive and unless they go negative the dips are likely to be bought. New highs are trouncing new lows.
Volume trends are positive but the January expiration was a distribution day for the markets. Indices were lower on higher turnover, that is a negative but we have not had too many distribution days of late, and in fact the count has dropped off some from December. Not a great day or week, save for the small caps but this week’s action should be interesting.
Support at 6908 for the SPX 500 is the 20 ma, and that might be penetrated this week. The IWM is pretty well extended, so a steeper drop could be realized and not be considered bearish. Nasdaq continues to flirt with the 20 ma, this could be a concern and resistance if the market falls this week.
The Internals
What’s it mean?
Not a great day for the internals, we mentioned last week the difficulty of the internals holding up the market. If the price action is not there all around then eventually te internals were going to fail. We haven’t see in yet but the VOLD and ADD are showing signs of tiring out. Ticks were mostly red on the Nasdaq but evenly distributed on the NYSE, Put/calls are starting to rise again as put buyers seek protection. VIX was down but rose up sharply end of day, someone buying some heavy protection in case today was bad — who knew?
The Dynamite
Economic Data:
- Monday:N/A
- Tuesday:N/A
- Wednesday:Construction spending, pending home sales
- Thursday:Jobless claims, GDP first look, PCE (nov), income/spending
- Friday:Consumer sentiment, SPX flash services/manufacturing PMI
Earnings this week:
- Monday:N/A
- Tuesday:MMM, DHI, USB, FAST, KEY, NFLX, UAL, IBKR, PRGS, ZION
- Wednesday:JNJ, ALLY, HAL, TRV, MMYT, KMP, CACI, PNCL, RLI
- Thursday:PG, GE, HBAN, ABT, MKC, ACM, NG, INTC, ISRG, COF, AA, CSX, BY, ALK
- Friday:SLB, ERIC, BHA, CMA
Fed Watch:
Plenty of fedspeak last week, pretty consistent with their views. We won’t hear anything this coming week as they are now in the ‘blackout’ period, the next fed meeting starts in a week. Fed futures not seeing a cut or hike happening at this next meeting, policy likely to be steady.
Stocks to Watch
Oil – Plenty of news surrounding oil and reserves, with Venezuela and Iran on the front burners. It appears likely that crude is on the upswing, perhaps to $65 or so and then higher if supply is disrupted.
Bitcoin – the big crypto currency has been on a roll since the start of the year and is trying to make another run at 100K. Speculators have been frustrated for the last few months as crypto currencies just don’t want to break out. Eventually it will happen.
Dow Industrials – Some big names this week but not tech-related. We’ll have MMM, JNJ, PG delivering earnings, it’ll be interesting to see how the ‘other side’ is living.
