The Fuse
Stocks are likely to open up lower on this Friday following some weak action overseas and poor reaction to some earnings releases last night. As we head for the end of January trading next week there is a seasonally strong period ahead the lasts until the end of the month, which could take the SPX 500 up to that magical 5000 area.
Interest Rates are lower as bond buyers continue to push fixed income higher in front of next week’s Fed meeting. The Fed Funds Futures market sees no change next week but the March meeting may be a bit more contentious with about a 50/50 chance of a rate cut at that meeting.
Stocks in Europe were higher Friday as a slew of strong earnings reports lifted those indices. The EU meeting yesterday hinted at rate cuts coming and perhaps as soon as April. Gold future are up about 5 bucks while crude oil is slipping following a strong day Thursday. We also saw many oil names rising up sharply on the day. We’ll be watching small caps closely as they have been linked to lower rates the past several weeks, the IWM rose up smartly yesterday on volume.
Mixed picture with earnings yesterday and today. Intel and KLAC beat but provided horrendous guidance for the next quarter and year, those two stocks are getting punished. AXP also missed but raised guidance significantly and that has the stock up 2.7% in the pre-market. Visa reported good earnings last night but often falls after posting their numbers.
Stocks scraped their way higher even as higher volatility pushed the markets up and down all session long. In what appeared to be a repeat of Tuesday’s action, the bulls pulled off a nice win following the very Fed friendly economic data this morning. Those reports indicate the economy is growing strong and not necessarily driven by price inflation.
Pretty good day of breadth, better than 3-1 on the positive side which was enough to turn the NYSE MC oscillator positive. That’s a good sign for the bulls here as we approach a seasonally strong period for the markets (last few days in January). The breadth numbers are solid as we are seeing an expansion of new highs vs new lows as well.
Turnover was lower Wednesday as the rising stock market just did not have much conviction. That is a good reason for the market selling off later in the day, but a mild pullback was to be expected. Remember, market volatility remains very low and as such invites sellers to come out of the wood work. We are coming up on the end of the month next week and certainly a strong month of January is going to offer a chance to books gains. That kind of volume will be notable.
The 4,900 level is ever so close as the SPX 500 notched another new all time high. That was an impressive move yesterday on pretty good turnover. We still still 4,800 as a good level of support here and a bit lower with the 20 day moving average at 4,780. This rally has been broad-based and continues to invite others to the party.
What’s it mean?
Internals were very strong Thursday and in line with the price and volume action. We saw an expansion of new highs and the VOLD really took off, this tells us as new highs were being tagged the volume was coming hard as well. A bullish sign. VIX was modestly higher as traders are still reaching for protection, it makes sens with VIX down at 13%. Ticks were strong, look at the heavy green arrows in the $TICK on the bottom left box, very strong action. We may see a bit more of this in the coming week as seasonal trends take over.
The Dynamite
Economic Data:
- Friday: PCE for December, Pending home sales
Earnings this week:
- 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.