The Fuse
Stock futures are ramping up this morning after some very strong earnings reports from technology companies. Of course, next week will be the Super Bowl of tech earnings but we are treated to a pre-course meal this week. Netflix is the big winner so far as the SPX 500 makes a dash for 4,900 today.
Interest Rates are falling as bond buyers continue to add fixed income products across the curve. The 10 year still remains stubbornly above 4.1% and that seems to be fine with equity traders/investors. If that yield starts to rise we may see a risk off situation once again, much like when the 10 year rose above 4% recently.
On the political front former President Donald Trump won the New Hampshire primary in a closer race with Nikki Haley than many had assumed.
European stocks were up 1% overnight following strong ASML earnings and from SAP, the Hang Seng rallied 3.6%. Gold is up fractionally while crude oil is modestly lower.
The Bank of Canada will have a policy statement today and tomorrow we’ll hear from the European Central Bank. Both are expected to keep policy held but may signal some timing for the first rate cut and how that cycle may play out.
Earnings are strong with a blowout number from Netflix while ASML and SAP, two large European tech companies crushed estimates. Tonight we’ll hear from IBM, Tesla, LRCX, URI and ServiceNow among others. Thursday morning has a few airlines, Valero, UNP, Dow and some energy names.
Stocks managed to shrug of lethargic trade early on as fast traders were taking out stops up and down the market. Eventually the bulls prevailed and any trades that were sold earlier were bought at higher prices. That is how the big money moves around especially in bullish trends, pull prices down and then right back up again.
Breadth was horrible all day long and actually did finish in the negative, so the oscillator remains under zero. However, last week’s big surge on volume and Monday as well puts this indicator in position to flip towards a buy signal within days. The breadth indicator has been a true flip flopper and we could see that flip up in a couple of sessions.
Volume was pretty quiet on the session, about 2/3 of what we saw on Monday. The internals tell the story here (see below), with little movement until end of day. A lightning bolt of turnover really ignited the last half of the trading day. We can attribute that to some short covering but a move above 4,900 on the SPX 500 will be notable.
We continue to watch for the SPX 500 to make a move on 4,900 and that may be coming later in the week. Support lies at the 4,818 level (old high), while the Nasdaq continues its trek towards 18K (Nasdaq 100). To be sure, the entire market is floating upward and is taking everyone along for the ride.
The Internals
What’s it mean?
Pretty slow day for the internals mostly, VIX was down sharply and the VOLD finished near highs of the day but the ADD fell on a sword. We saw put/calls again drift lower, ticks were moderate most of the day but came on strong in the last 90 minutes. The last half of the week will be very interesting with some heavy data and earnings reports coming up.
The Dynamite
Economic Data:
- Wednesday: Flash PMI, crude inventories
- Thursday: Jobless claims, durable goods, GDP Q4 first look, new home sales
- Friday: PCE for December, Pending home sales
Earnings this week:
- Wednesday: ASML, T, GD, ELV, KMB, SAP, STX,LVS, CSX, IBM, LRCX, URI, TSLA, NOW
- Thursday: AAL, ALK, LUV, HUM VLO, DOW, UNP MKC, MBLY, NOC, SWH, INTC, KLAC, SBUX, VFC, V, COF, TMUS LHX, WDC
- Friday: AXP, CAT, CHD, CL, NSC
Fed Watch:
The FOMC heads into a quiet period before their first meeting of 2024. All eyes will be on the data coming out this week especially first look GDP from Q4. Some comments last week by committee members were meant to temper the excitement over a dovish policy. Members have argued it is far too early to think quick and large rate cuts are coming. If data this week shows the economy is still strong the committee is likely to ratchet back cuts even more. As of now it looks like 2-3 in 2024 but that could clearly change at any moment.
Stocks to Watch
Market Indices – The SPX 500 with a new all time high tagged on Friday was impressive, but the bulls would like to see a followthrough week.
Technology – The first big week of earnings for tech names such as Intel, IBM and Netflix. These stocks have shown good relative strength the past few months but will they say enough to keep prices elevated?
10 year yield – Don’t look now, but the 10 year has quietly moved back above 4% this past week. That is not much cause for concern yet, especially if inflation is contained over the next few price index reports. But certainly lower yields will help small cap stocks, the one index that is negative in 2024 and about 20% away from all time highs.