The Fuse
Equity futures are mixed with the Industrials slightly higher and Nasdaq slightly lower. We saw good strength in the small cap yesterday so we will look for some followthrough in that group, especially if interest rates continue to fall. June PPI will be released today.
Interest Rates are slightly higher as the market awaits the second piece of inflation data this week. After yesterday’s CPI it appears fed funds futures are once again pricing in more rate cuts, preferring to jump ahead of the committee. We know where that wound up earlier in the year when as many as six rate cuts were being priced in.
Stocks in Europe gained a bit with the STOXX 600 up by .2%. Crude oil is up as WTI is nearly $84 a barrel, gold is down sharply after a very strong day Thursday. German 10 year bunds are lower, yesterday saw treasury yields get slammed with the 10 year closing under 4.2% for the first time in awhile. Stocks in Asia were mixed, Japan’s Nikkei was down 2.4%, Hong Kong up 2.6%, continuing a recent resurgence.
Earnings from the banks got kicked off this morning with a beat on the top/bottom line from JP Morgan, a beat from WFC but that stock is pulling back. Citi is out later.
A very strange day for the indices. After the CPI release yields fell sharply and continued to fall which triggered buying in the small caps.
The IWM had its best day of the year rallying nearly 4% on brisk volume. That stoked some buying in other sectors like materials and industrials, but the Nasdaq and SPX 500 took it on the chin. This had the markings of computerized trading, after the first few hours of movement markets basically went nowhere. It’s the world we live in.
With strength in the small caps the breadth figures were outstanding. A nearly 7-1 rout by the bulls helped push the oscillators higher and remove the negative divergences that had existed. As a result, oscillators are heated and elevated. Strength early across the board helped new highs print a strong number, this remains on a buy signal. Internals were strong across the board.
High volume day across the board but it means something different for all the indices. First the IWM, which had its best volume day of the year as that index rocketed higher. The Industrials also joined in with higher turnover, these two indices printed a solid accumulation day. On the other hand, higher volume with a down session for the SPX and Nasdaq marked a distribution day, the first in a while. Not too damaging though unless there are several prints of these happening.
The Nasdaq and SPX 500 tested some lower levels and managed to bounce. For the SPX 500 that was 5,600 but it failed to hold on the first shot lower. This can be rehabilitated with a move back up in a couple of sessions, establishing the lows from Thursday as support. The Nasdaq pushed to near the 10 day moving average at 20,165 but closed off that level. It’s going to take some time and work to make sure that low holds, otherwise a move under 20K is in the works.
The Internals
What’s it mean?
What a day for the small caps, and what a day for the internals. The Russell 2K managed to pull together its best day of the year with rates plunging. Across the board internals were strong and bullish, the VOLD ripped higher as did the ADD from the open and never let down. VIX tumbled off the highs but did finish above 13%, the ticks were amazing with green arrows dominant. This bodes well for the next few sessions.
The Dynamite
Economic Data:
- Friday:PPI, Michigan sentiment
Earnings this week:
- Friday:JPM, BK, C, FAST, WFC
Fed Watch:
Two big important days this week with Chair Powell’s bi-annual testimony in front of Congress and the Senate. The Chairman is likely to reiterate the same words as the last statement and last week, not willing to share if/when the committee is willing to cut rates. He is likely to talk positively about jobs and lower inflation. We’ll see how the markets respond.
Stocks to Watch
Fed Funds Futures – Market players are eager to get the Fed cutting rates. Chair Powell is testifying in Congress this week and that might give us some clues as to policy. More importantly, inflation reports this week will give us more information.
Interest Rates – Without much fanfare the 10 year yield has fallen sharply from 4.5% to 4.23%. That is a full rate cut and the futures have responded in kind. The 4.2% level is solid support from last month,, will we break it? If so, small caps will lead the charge.
Banks – Large banks like JPM, WFC will report this week. They have already had a big run so perhaps this is a sell on the news event.
More banks report in the coming week.
