The Fuse
Equity futures ar getting pounded this am following yesterday’s monster surge. Volatility is rising as are gold and crude oil, rates are up as well. Setting up to be a risk OFF day, so be prepared and hold onto some put protection. Fed Governor Michael Barr speaks later in the day.
Interest Rates are rising this am as the 10 year yield remains stubbornly above 4%. With a few more days above this level we could see a move back up towards 4.25%, especially if more Fed officials dampen the prospects of more than two rate cuts this year.
Stocks in Europe fell overnight and that is dragging down stocks in the US. Investors are worrying again about inflation risk as a huge amount o corporate and government debt comes online to markets. Monday was the last trading day of the FFD, or the first five days of January and like the Santa Claus Rally indicator before it, this was a loser, albeit by a small amount following Monday’s try for a stick save.
Markets finally made it into the winner’s circle but a week later than expected. The monster rally got underway from the start and never really let up, now it is up to the bulls to have a followthrough day. If that doesn’t happen then there is risk that Monday’s surge could be pulled back down. Something to keep in mind as volatility swings higher as we start up earnings season.
Market breadth was impressive Monday with advancers leading decliners by a 3-1 margin. Another positive day of breadth and this indicator will move back to the bullish ledger. Of course, starting lower won’t help that cause but the day is long. Technology led the way with very strong breadth as the oscillators made their way towards positive territory.
Turnover was weaker than you would think, but Monday’s are often the slowest days of the week, so that could explain things. Still, volume could have been better on this very strong price action day, but we’ll have to see if this was more of a short covering rally or something better to push the markets higher later in the week.
The SPX 500 had an impressive move pushing through 4700 on Monday as we have the markets sliding around within a moderate range. The downside we’ll say is 4700 the upside at 4800. Russell 2K had a nice recovery but closed right at the 20 day moving average, this needs to be exceeded over the next day or so for the markets to continue higher.
What’s it mean?
Pretty good day across the board for the internals. That VOLD made a big move as the volume confirmed the advancers/decliners. VIX plunged lower under 14% while the TICKS were green an concentrated all day long. Buy programs hit the tape literally all session long. ADSPD moved higher but did not quite print a followthrough day. Still the internals were the winner, best day of 2024.
The Dynamite
Economic Data:
- Tuesday: Trade Balance
- Wednesday: Wholesale Inventories, Mortgage Apps
- Thursday: CPI, Jobless claims
- Friday: PPI
Earnings this week:
- Tuesday: ACI, PSMT, WDFC
- Wednesday: KBH
- Thursday: INFY
- Friday: BLK, BK, C, DAL, JPM, UNH, WFC, BAC
Fed Watch:
The release of the prior meeting’s minutes last week struck a tone of cautious optimism. On the one hand, the committee seemed pleased with the trend of inflation coming down and acknowledging their strong rates have been working. On the other hand, they dismissed the ‘all clear’ signal completely, preferring to err on the side of caution even as the economy starts to slow down. They introduced the idea of rate cuts in 2024 but refused to say when, keeping with their style of waiting on the data. This week might have some member talking down the rate cut expectations set in futures markets.
Stocks to Watch
Oil – Crude oil has been creeping higher of late in response to turmoil in the red sea but also likely due to more supply constraints.
That will keep a nice bid under crude as we see WTIC make another run towards $80. The chart is getting bullish here.
Banks/Financials – Friday is the first big day of earnings for Q4 and we’ll hear from some big major banks (see above). What they say about their business, credit, liquidity and financial conditions will be crucial. These stocks have run hard for three months so any bit of caution is likely to get slapped down.
Apple – A couple of downgrades this week following the end of the quarter has put Apple investors on their heels. In years past these pullbacks have been tremendous buying opportunities, is this going to be another one? The stock tagged the 200 ma on Friday.