The Fuse
Much like Thursday equity futures are bouncing back, posting some nice gains early. But we hope for a different conclusion than yesterday, when the sellers took control and took the markets lower by days end. Today is the completion of the Santa Claus Rally, which has turned into a huge loser for the markets. That may not matter as much as January’s performance.
Interest Rates are down as a modest bid comes back to bonds. However, this early morning bid has been sold off sharply over the last several days, so there is a mountain to climb if stocks are going to get some support from the bond market. Fed funds futures see potentially 1 1/2 rate cuts in 2025 but if the data does not support it there won’t be any cuts.
Stocks are trying to rise for the first time this week, hoping to hold some pre-market gains. Stoxx in Europe was flat in morning trade, The dollar fell .1%. Crude oil is flat as is gold, the German 10 yr bund yield fell by 1bp as did the US 10 year treasury yield. Over in Asia Japan was closed again, Hang Seng posted a nice .7% but Shanghai got ripped by 1.6%.
Earnings are nascent this week, we’ll be picking up the pace in a couple of weeks as earning from Q4 come dribbling in.
Another volatile session as markets continue to sputter, this time a weak start to the new year. Unless a Christmas miracle occurs the Santa Rally will be a dud. That’s not all bad, remember in 2023 the SCR was negative but the indices posted robust gains the following year. What we believe is more critical is how the markets perform in January. By that measure we are off to a poor start but let’s see how things play out before judging the year.
A strong breadth day early faded hard and by the end of the session only a few more winners than losers. This indicator has been problematic for the markets. Remember, when issues going down are leading as they have been it means more selling is bound to occur, and rallies continue to be sold. That can change of course when vacationing traders return but let’s not rely on that.
Outside day for the DIA but lower highs, lower lows for the other indices. That spells trouble of course, and with volume still coming in heavy to the sell side a correction is starting to show its hand. That is simply a function of higher volume on the down sessions, though we have not had too many distribution days, higher volume than the prior day, professional selling. Option volume has been brisk with downside action (protection) being added.
More important support levels were tested on Thursday, down to 5,860 on the SPX 500 and even lower during the session. That level is extremely important, if the bulls cannot keep the SPX 500 above there then there are problems. Nasdaq fell below the 50 ma for the first time in awhile and closed right on it. At this point and this being a Friday, market action is not inspiring the bulls to add before earnings season gets underway. DIA and IWM have broken support.
The Internals
What’s it mean?
Certainly the best part of the trading session was in the first hour. From then on the internals and the market just fizzled, with weakness seen again in the ADD. Put/calls are still on the rise, ticks were about even but some heavy sell programs all day long. VIX climbed and nearly hit 20%, it is now in spiking mode. Friday is a tough day for the bulls especially with potential adverse news over the weekend.
The Dynamite
Economic Data:
- Friday:ISM manufacturing
Fed Watch:
Nothing happening this week as fed speakers are silent. We’ll have the meeting minutes coming up next week and probably some fed speak as well. So far the futures market is aligning with the the Fed’s posture, persuaded by the bond market that rate cuts need to slow down.
Stocks to Watch
Santa Claus Rally – Last four days of this period, can the bulls pull off a win as is normally the case, of will the Grinch steal the spotlight?
Volatility – The VIX made and appearance this week, running lower and then higher, settling around 16%>. We can expect to see more volatility in the coming year as not many are expecting that to be the case.
Technology – These stocks were hit hard Friday, let’s see if they can finish the year on a positive note.
