The Fuse
Equity futures are slightly higher so far as traders look to stop a three day slide. Volatility is on the rise as the bullish seasonality has passed. Yesterday the Santa Claus Rally Indicator finished up and it was a loser, a warning for markets down the road.
Interest Rates are higher across the curve in the pre-markets as bond sellers are starting to re-price potential fed rate cuts. The current market sees six cuts by early 2025, way ahead of what the Fed suggested at last month’s meeting. The minutes released yesterday also confirm the committee is going to move slowly and gently.
While stocks are trying to rally they continue to see headwinds from higher crude prices, higher gold and higher treasury yields.
These are all risk off conditions, but in the short term the markets are pretty much oversold, so a bounce could be expected. Stocks are off to their worst start for a new year in quite some time. Nasdaq is down nearly 3% so far in 2024. Apple continues to slide too, falling sharply on a downgrade Tuesday and moving down towards some support at $180. Euro stoxx rose modestly overnight, Asian stocks were little changed.
Nothing much this week on the earnings front but Cal-Maine Foods delivered poor numbers on Wednesday. Big banks kick things off next week.
Stocks continued their slide in the new year as the indices were pounded all day long. Could it be that tax selling was put off until the new year? It’s possible but certainly the conditions have been ripe for a pullback after a monstrous run, no matter what the calendar says. In other words, selling to take profits before anyone does regardless of what day it is.
Another day of poor breadth and now this indicator is on a strong sell signal. These are popping up now even though the SPX 500 chart is still clinging to a bullish condition. Some have thoughts about the strength/weakness in January being a barometer for the year. If up, the likelihood the market advances is high but this year might be a little awkward, considering all investors/traders will be watching the moves by the Fed. The meeting minutes yesterday were a good example as volatility ratcheted up.
Three days in a row of heavy distribution means professional selling and boy was it strong. The Nasdaq closed below its 20 day moving average for the first time in a month, where back in early December the tech-heavy index recovered the following day with a higher high, higher low on good volume.
Overall we had not seen good turnover until these last few days, and those were down. Tells the story.
Stocks were punished as the SPX 500 tested the 4,700 level for the first time since December 20th’s massive drop. But the market bounced bed sharply the following day and then the santa claus rally got underway, but that was of no consequence. The SCR indicator failed, and ‘bears may come to broad and wall’ in the year to come.
The Internals
What’s it mean?
The internals were awful all day long and the VOLD or ADD just simply pushed down. This was a risk off day from the start as the indications early on set the tone – higher rates, poor economic data and down markets overseas. VIX ran up and closed over 14% since November 16th. The indicator is flashing bearish signs for the markets. Note the put/call ratio was elevated. One day does not a trend make but this indicator tends to trend over days or weeks. In other words, keep an eye on this one here.
The Dynamite
Economic Data:
- Thursday: Challenger Job Cuts, ADP report, jobless claims
- Friday:NFP report, ISM services, Factory Orders
Earnings this week:
- Thursday:CAG, LW, RPM, WBA
- Friday:STZ, GBX
Fed Watch:
The Fed meeting minutes from the December session will be released on Wednesday afternoon, which could offer more clues as to what the committee was thinking. Certainly the projections and the promise of rate cuts is going to ignite a response, but perhaps the minutes show the committee will poor some cold water on the market. Fed funds futures are looking for 6-7 cuts in 2024, probably far too much exuberance.
Stocks/Issues to Watch this Week
Jobs Report – Will this week’s job data start to show the economy is slowing down? Following a couple of strong numbers we could see that happen, and if there is some friendly wage data that might juice the markets on Friday.
Energy – Oil prices remain elevated but supply issues remain a problem. We are watching the $75 per barrel level closely and if crude rises above then technically there is room up to $82.
Retailers – We may hear from some retailers this week on how holiday shopping ended. Most companies were fairly optimistic and had good inventory levels, we’ll have to see the numbers before making an assessment.