The Fuse
Equity futures are getting drilled this morning as stock traders take profits from some massive gains in July. Seasonal trends are bearish here, often the last half of July is weak, that starts today. While there are some big earnings later in the week that may shake things up a bit, the overbought condition is clearly a red flag.
Interest Rates are up slightly across the board as the 10 year yield fell through some good support. The 4.2% level had been pretty good at containing rates but that was penetrated and thus the fed futures market is signaling more rate cuts than the Fed is considering. Remember when this happened earlier in the year? Yep, expect Fed speakers to throw cold water on the bond and stock market.
Stocks are fading this morning after a monster run over the past couple of weeks. The Russell 2K is scorching hot and is due for a pullback, as is the Industrials. This rotation out of tech continues. Oil is up modestly as is gold and silver. In Europe the STOXX declined about .4%, while stocks in Asia were mixed. The Republican Convention concludes today with a nomination process.
Earnings from ASML overnight were strong but the stock is getting hammered after they warned about the US considering new export controls.
Regardless, the stock is up huge and any reason to sell is good enough. Earnings from JNJ were strong but they lowered full year earnings guidance. Later today earnings from United, Alcoa, Equifax and in the am TSM, Cintas, DR Horton, Domino’s and Infosys.
The amazing rally continues and once again led by the small caps. Russell 2K is having a record-breaking month of July with strong volume and impressive price action. The result is carrying the other indices, the Dow Industrials with another new record high along with the Nasdaq and SPX 500. It seems last week’s weaker than expected CPI data is more meaningful to traders than it was at first blush.
Nothing like gobs of breadth to really strengthen the case for a bull market run. Stocks continue to move higher as more money piles into names of all sizes. Though we did see a lack of performance by the Nasdaq. New highs are still in control, the oscillators are super overbought so a corrective day is coming.
Short covering probably started this rally last week, but doesn’t that always happen? Pretty strong volume again as stock buyers rush to add positions before it’s too late. Of course, that is called the chase, a very awkward move and irrational one that makes little sense to the ‘buy low, sell high’ mantra.
Stocks racing higher give us more reference points to the downside, but as the market stretches away from moving averages the harder the market will fall. Yet, during this earnings season we do not believe any drop will be sustainable. The Russell 2K is very overbought as is the Nasdaq and NYSE, lower levels of support are deep so a corrective move could be painful.
The Internals
What’s it mean?
The internals Monday sent a powerful message that a rally could continue on. That was true about Tuesday, the internals printed some crazy bullish numbers that are probably not sustainable but for one day, very impressive. The VOLD spiked at the end, the ADSPD ended at a trend up day while the ticks were green as can be all session long. This bodes well for the next couple of sessions.
The Dynamite
Economic Data:
- Wednesday:Mortgage Apps, Housing starts, Industrial production/cap utilization, Fed Beige Book
- Thursday:Jobless claims, leading indicators
- Friday:Japan Inflation rate (June)
Earnings this week:
- Wednesday:ASML, ALLY, JNJ, SYF, EQX, AA, DFS, CCI, UAL, STLD, ELV, AA
- Thursday:CTAS, INFY, NOK, KEY, TSM, NFLX, ISRG, PPG, AAR
- Friday:AXP, SLB, TRV, HAL
Fed Watch:
A pretty nice job by Chair Powell last week on the Hill. In double testimony he re-affirmed the committee’s need to watch the data and hinted the next move would likely be a cut rather than a raise. Higher for longer was not heard much, meaning they intend to cut rates at some point this year. Other fed speakers reiterated the same position. Chair Powell speaks on Monday, two other fed speakers are out later in the week.
Stocks/Issues to Watch This Week
Retail – Sales for June are out Tuesday morning and I will be looking for some strength following a couple of poor readings from the Spring.
Amazon – Kicking off prime days this week (Tue/Wed) this is a very popular event where shoppers go crazy for bargains. This has become a huge staple for Amazon’s earnings.
Tesla – After an explosive month the stock had virtually recovered all of its 2024 losses by Wednesday. This is a high momentum name that will definitely move markets. Any news about this car is going to bring out the traders in spades, with expiration on Friday it could get interesting.
