The Fuse
What are futures doing?
Seeing a bit of softness in equity futures this morning as the hot semiconductor group continues to cool off. No surprise seeing a bit of settling down after the very strong gains in 2026 but when earnings start to hit this group will be relevant for the rally to continue.
News
Influence from overseas is spilling into US markets this morning. European stocks drifted with the STOXX down .1% led by slight falls in France and Germany. The FTSE though added .3%, US dollar climbed .1%, gold is back to testing 4K again, silver below 60 while crude oil is getting a lift after the strait of hormuz was closed – again. Yields are up on that news, German bunds higher by 4bps, US 10 yr treasury yields up 2bps. Japan fell 1.9% on higher volume trade, Shanghai also down 2.1% but Hong Kong gained .2%.
Volatility
We talked about complacent markets last week and the VIX is showing it here. The fear index is right at 15%, a level the sellers just cannot be comfortable at. As a result, the VIX is rising up today, we’ll have to see how the rest of the stock market responds, if a no bid day then this could get interesting..
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Interest Rates
Worries about inflation have rates rising up this morning, but of course the inflation reports this week will have a larger effect. Higher oil prices again are the problem, but crude is still well below levels from April and May. Long end of the curve is rising up fast, high yield spreads are widening a bit, they remain attractive to new money. Fed funds are not moving much but could certainly be on the move after CPI Tuesday morning.
Earnings
A big week for earnings as the markets gear up for a rousing 2nd quarter season. Banks/financials will hit the confessional early in the week with JPM, C, GS, MS, WFC and BAC reporting. Also some other big names like GE, Netflix, ASML, Blackrock, UnitedHealthcare and United among others. A good array of names to see how things are shaping up.
Events
We’ll call it a strong day for the indices with the SPX and Industrials just a touch off all time highs. The bar is raised for stocks now with earnings season here and possibly lower inflation readings later in the week. The only issue here is a lack of fear with the low VIX, that may get corrected today, but no doubt after Q1 strong earnings the hope is there for a strong Q2.
Breadth
Breadth was better on Friday but the sell signals did not flip around as this indicator remains weak. Oscillators are mixed and straddling the zero line again, there are plenty of buyers and sellers on both sides of the trade. New highs however continue to beat out new lows, this indicator remains on a buy signal.
Volume
We’ll call it an accumulation day for the SPX 500 and Industrials, a positive move up on higher volume usually brings in more buyers. As a result, these two indices are right up against all-time highs which could be exceeded later in the week. Volume trends are positive but not excessive right here, which is actually a positive to keep the rally moving.
Support Levels
Recent pullback tests were successful as the bulls managed to pull the markets back from a couple of dismal days. In fact, the indices are not overbought here yet and could get there in days, if the breadth and volume can kick in a new surge can develop. Support on the SPX 500 at 7500 and 7400 while the Nasdaq 100 sees 29K as very firm support.
The Internals
What’s it mean?
It was all about the VIX on Friday, this indicator fell to lows not seen in months. We expect to see it lift as soon as today though, and that could bring pressure on the markets. Internals are acting in kind with the market action, VOLD actually pretty strong while ticks are positive as well. PUT/CALLS are lower, the ADD not responding well but staying positive.
The Dynamite
Economic Data:
- Monday:lots of fedspeak
- Tuesday:CPI, small biz optimism, fedspeak
- Wednesday:empire state, PPI, pce, Fed Chair Warsh testimony, more fedspeak
- Thursday:Retail sales, philly fed, housing market index, pending home sales, jobless claims, more fed speak
- Friday:Housing starts, import prices, industrial production, cap utilization, michigan sentiment.
Earnings this week:
- Monday:AERO, FBK
- Tuesday:C, GS, JPM, BAC, WFC, FAST, ERIC, AEHR PXFD, LOOP
- Wednesday:ASML, PGR, BLK, MS, CAG, JNJ, ELV, PNC, MTB, CTAS, UAL, JBHT, KARO
- Thursday:UNH, TSM, USB, GE, ABT, STT, CFG, NFLX, ISRG, AA, CNS, WISE
- Friday:RF, TFC, FITB, TRV, SFFI, SKIFY
Fed Watch:
Pay attention this week to Chair Warsh as he talks to Congress about monetary policy. Listen carefully for clues about where policy may be heading, though he has been evasive for weeks. He will face some tough questions this time around.
Stocks to Watch
Chip stocks – with SK Hynix now trading in the US markets there is another competitor for dollars out there, and that might take from Micron, Sandisk and others. This group is key for the markets to retain upward mobility.
Banks – The big banks will report earnings early in the week and optimism is high, with most names at/near all time highs. I suspect strong numbers but any whiff of caution will knock these stocks down sharply.
Volatility – We will again watch volatility closely as the VIX is down to a very low level, near 15%. That is a bit too cozy for market players so expect some giveback, though with earnings up this week not too much.
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