The Fuse
Equity futures are mixed this morning with the Nasdaq slightly down while the ES and Dow futures slightly up. While Monday could be considered a followthrough day from Friday, the internals were pretty weak (see below), so we are looking for better overall action today. Oscillators remain above zero but finished well off their best levels of the day.
Interest Rates continue to rise up, bonds selling off a bit as fixed income buyers just do not want to step up to buy until they see a bit more resolution on inflation. Yesterday we heard from Fed speaker Barkin who said the committee could very well be in pause mode for awhile if inflation remains sticky.
Stocks in Europe fell about .4% overnight as some selling hit these markets. The dollar fell .1%, gold is higher by .45% while crude oil is still climbing. German 10 yr bund yields were flat, US treasury 10 yr yields down 1bp. Stocks in Asia were mixed, Japan up a robust 2%, Hong Kong down 1.2% while Shanghai bolted higher by .7%>
Earnings are sparse this week but we’ll hear from JEF, Delta, Constellation Brands, KB. Home and Walgreens later in the week.
Some would consider Monday’s trading as a failure or simply a flop. Stocks shot higher to start the trading day but fell sharply and finished just above the lows of the day. That action left a bearish candle, buyers just not interested in taking the SPX 500 above 6000 for a close. That will come in time we believe, but for now the market trades in a sloppy fashion.
Good breadth early on was not considered to be a problem, but some late day sell programs turned a positive into a negative. Froday’s action was good relatively speaking, even if it was simply an oversold rally. As it stands, the markets may push to an overbought reading in a few days if the up days continue. Better breadth would surely give us more confidence in what lies ahead.
Turnover was brisk on Monday, with an accumulation day being notched. That is important if the market is going to re-start the bullish trend. A series of accumulation days tells us buyers are coming in and picking up stocks after the recent selling. However, some distribution days are not so distant and actually happened near the end of the year, so there is still less confidence in this two-day rally. The more distance away from the recent selling the better.
It seems as though the levels tested on the QQQ and SPY the prior week are solid support, though we would still like to see a bit more action to the upside just to be certain. The IWM (small caps) continue to be a problem, they started out having a strong day but faded late as bonds sold off hard. January is often a time for small caps to shine, we’ll see if it happens.
The Internals
What’s it mean?
The internals just could not match the good price action of the stock market. Just look at the miserable day from the ADD, highs at the open and just straight down from there. This is the same sort of action as December, and we know how that ended up. VOLD also unimpressive, the VIX moderated while the TICKS hit red at the end of the day, several sell programs. Internals are clearly not contributing to the cause.
The Dynamite
Economic Data:
- Tuesday:trade deficit, ISM services, job openings, fed speak
- Wednesday:ADP, Fed meeting minutes, consumer credit
- Thursday:jobless claims, wholesale inventories
- Friday:Consumer sentiment, December payroll report
Earnings this week:
- Tuesday:APOG, LNN, CALM
- Wednesday:ACI, HELE, MSCI, JEF
- Thursday:STZ, WBA, KBH, PSMT, WDFC
- Friday:DAL
Fed Watch:
Not much fed speak scheduled this week but some members came out last week and talked down monetary policy. It seems they all really want to pause at this point, at least for a few meetings, making it very transparent of their path. The market may not like it but that does not matter. The meeting minutes released this week will be interesting. Richmond Fed President Barkin speaks again Tuesday.
Stocks to Watch
Volatility – Stocks have been on a rollercoaster ride for a month, will that volatile action smooth out a bit? With earnings season coming up it could be a bumpy ride until then.
Jobs – Markets are expecting a fairly strong jobs report for December (155K), and if that happens with little inflation the Fed will continue to be cautious and may pause at this month’s meeting.
Bonds – Fixed income continues to move lower as yields press ahead. There is no need to add bonds here if inflation remains sticky, which is what the data and the Fed have been telling us.
