The Fuse
Equity futures were bouncing overnight but appear to again be losing ground. Bears have made their presence felt, if only for the short term. Seems as if the news of attacking Europe with an iron fist might be the wrong approach, the markets are seeing it that way. We’ll have to see more as things play out.
Interest Rates are coming down a bit this morning after yesterday’s substantial selloff. On Tuesday the 10 yr went above 4.2% for the first time since August when it started a sharp decline. Without a change in inflation bond holders have little choice here. 30 yr yields are also rising, high yield spreads widened significantly and portray a different problem (slower growth), fed funds futures now see only a 38% chance of a cut in April, very little for the next two meetings.
Stocks in Europe and Asia were mostly weak but not nearly as bad as expected. The STOXX down .1% with drops in France and Germany, Japan down .4% and Hong Kong down the same amount. Gold continues to rise, up more than 2% but silver is easing up. Crude oil slightly higher, the dollar was flat. German 10 yr bund yields down 2bps with 10 yr US treasury yields off 3bps.
Earnings from Netflix last night were good but not great as the company warned about it’s future. They did have record subscriber numbers though, and as the company works to purchase Warner/Discovery there are challenges ahead. United beat on all metrics and is higher this morning, Interactive Brokers had a good beat as well. This morning we hear from JNJ (slight beat), Halliburton, Schwab, Traveloers and Ally.
Markets fell on the sword Tuesday following some tariff/Greenland related news over the long weekend. Buyers were nowhere to be found yesterday, probably hiding under their desk until the carnage was over. But the problem is stocks fell and closed at their worst levels of the day, which often means there is more selling to go. One thing that makes investors worried is a very large drop in 1-2 sessions. If this continues to be the case look for some panic to set in.
Some of the worst breadth we have seen in weeks, a better than 3-1 thrashing that doesn’t seem too bad on the surface but spread like wildfire. Nary a buyer after the opening bell, the oscillators fell sharply and are back in negative territory. Perhaps a move lower to some better support might induce the dip buyers to come in, but not until some lower levels are tested.
Heavy turnover on this day after a holiday and that means one thing – distribution. Heavy turnover means that big institutional selling was the activity of the day. We don’t have clusters of these yet but it will only take a few more to give a major bearish market signal. The IBD (investors biz daily) has already scaled back as the Nasdaq failed to regain the 20 and 50 ma. High volume should signal some exhaustion, but not in this case.
Markets fell like a hot knife through butter and right through the 6825-30 level that was major support. Even better support is the December low about 100 points below here, but if that fails to hold there could be more trouble brewing. Breaking that level in the first few months of the year generally means something bad is about to happen. For now, we’ll see if 6750 holds first, 6800 fell hard and did not have much support.
The Internals
What’s it mean?
We had been saying things under the hood were not looking good, and sure enough the bears took control. These internals were atrocious yesterday, with weakness in the VOLD and ADSPD along with ADD. Look at those TICKS, a sea of red while the VIX ripped higher, now above 20%. Put/calls also rocketed higher, this indicator solidly on a sell signal. Bulls will need to do some heavy lifting.
The Dynamite
Economic Data:
- 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:
- 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.
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