The Fuse
Equity futures are rallying again this morning following a very strong showing yesterday. Solid volume, breadth and price action as the markets rallied sharply higher and cleared some stiff resistance.
Interest Rates are sharply lower again today following the release of yesterday’s benign CPI reading. If inflation is coming down, interest rates may continue to fall.
Strong earnings from Pepsi and Delta are helping to push those stocks higher. We’ll heave from the banks tomorrow and early next week. If another week inflation reading comes out today there could be considerable movement in the fed futures contract, which still sees a 93% chance of a hike in two weeks.
Getting ready for Q2 earnings season, stocks are going to react to positive or negative news. Considering the strong move up in the indices the past six weeks, plenty is at stake.
PPI and jobless claims will be released this morning, the market is well bid so far.
Solid breadth for the fourth session in a row (see the VOLD below). No question the strong breadth has been impressive, again led by the broad Russell 2K.
Volume remains on the positive side of things, and given that we are pretty well overbought there could be a pullback coming, if that is on lower turnover then we know big money has conviction to stay in the market.
It seems 4,500 on the SPX is going to be a layup, but of course we are heading into an overbought reading. Hitting that mark might be a sell the news event. Support coming in at 4,400 and then 4,330 below there.
The Internals
What’s it mean?
Another day of strength in breadth and a drop in VIX charged the markets higher. Four straight sessions of strong VOLD is very impressive, but we are at a point where the conditions are ripe for a pullback. How is that pullback going to look? Certainly with new highs surging and a VIX lower under 14% there is little fear of going down. Notice the concentration of green bars in the TICKS, this tells a bullish story.
The Dynamite
Economic Data:
- Thursday: PPI, jobless claims
- Friday: Import/export prices, Michigan Sentiment
Earnings this week:
- Thursday:CTAS, DAL, FAST, PEP
- Friday: JPM, BLK, C, WFC, UNH, STT
Fed Watch:
More Fed speakers out yesterday with Neal Kashkari and Loretta Mester hitting the stage. We don’t expect too much from them but certainly the latest inflation reading might be something to comment on.
Issues/Stocks to Watch This Week
Banks/Financials – This group starts reporting their Q2 earnings this week. Financials have been rather weak since last quarter, we’ll see if they can snap out of their funk.
Interest Rates – We saw a big rise in rates last week, the 2 year above 5% again. If that continues we could see equities shed some value.
For now it appears that 5% level and 4% level on the 10 year should be a peak.
Semiconductor Stocks – On Monday, Taiwan Semi stated their revenue would be down significantly in June. This smacks at recent talk of bullish trends, so we’ll have to see how this group responds.