The Fuse
Equity futures are mixed this mornings as the markets are trying to extend their winning streak to five. Yesterday’s impressive rally pshed the SPX 500 above 4,500 for the first time in well over a year.
Interest Rates are not moving much this morning, the inverted yield curve continues to improve. The 2/10 spread is now at -88bps and getting better as yields start coming together. This would be bullish for the markets to see this continue to narrow.
Stocks hit a new milestone yesterday, closing above 4,500 on the SPX 500 while the Nasdaq drifted higher. They call the ‘Magnificent Seven’ in the Nasdaq the ones responsible for moving that index, and they did not disappoint.
JP Morgan again crushed earnings expectations this morning while we also saw UNH with a nice beat and slightly raised guidance. Wells Fargo is higher after a solid beat on the top/bottom line.
As it followed with the CPI, producer prices came in lower than expected, not a huge drop in prices but continued the trend of steady declines.
Another day of strong breadth brings this to five straight days of solid accumulation. The strong breadth is supportive of stock prices and helps to drive the markets higher.
Volume trends have been mildly bullish this month and continued that pattern yesterday. The strong price action and hesitant volume tells us that wall of worry is up high now.
Milestones just continue to fall, the 4,500 resistance was the latest marker. We see more resistance at 4540 and then 4600, but the oscillators are severely overbought here and next week could bring a good whack day.
The Internals
What’s it mean?
It’s pretty rare to see five straight days in a row with the VOLD in this pattern (top left). What’s impressive is the first up session includes last Friday, which the SPX 500 ended lower on the day. TICKS remain very strong, the VIX is still trending down and put buying is nascent. At some point this reverses, so we continue to preach good risk management, taking money off the table and waiting for the next opportunity to arise.
The Dynamite
Economic Data:
- Friday: Import/export prices, Michigan Sentiment
Earnings this week:
- Friday: JPM, BLK, C, WFC, UNH, STT
Fed Watch:
Chris Waller came out this morning and discussed the FOMC economic outlook and recent actions from the Fed. He remains hawkish and believes more tightening is inevitable but is satisfied with the work done to date. Further, he believes rate hike effects lag 12-24 months, and we are only 15 months into the first hike. He’s for ‘higher for longer’.
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.