The Fuse
What are futures doing?
Futures are following through today but to the downside, a corrective move is occurring. Many strategists don’t feel this is anything serious or believe it is happening, but likely will when selling accelerates. Nasdaq futures down close to 2% in early trading.
News
Some healthy selling in Europe as the STOXX is down .5% led lower by losses in Germany and France. The FTSE in England was actually higher by .1%, gold is back to 4K while silver continues to fall, crude oil up 2% and the dollar index flat. Yields are falling, which may help markets later today, German bunds off 1 bp, 10 YR US treasury yields down 2bps. Japan stocks fell hard, off 4%, Shanghai down 3% and Hong Kong off 2.1%. A rout in Asia.
Volatility
VIX is on the move here with the fear index rising above 18%. We spoke recently about the complacency shown in the VIX, that could lead to some heavy selling. Well, here we are and if the VIX spikes above 19% more selling is likely to commence.
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Interest Rates
Seeing a modest bid in the fixed income markets, yields are down across the curve as bargain hunters step in after a brief rise in yield. The 10 yr yield is pressing to 4.6% again, 2 yr is down but only slightly. Seeing good strength still in high yield bonds, spreads are tight. Fed funds futures not moving much, the next meeting could bring a hike but the chances are slim.
Earnings
The chart of Netflix was telling you earnings/reaction would be bad, and the company delivered on that promise. Sure, they beat the estimates but guided significantly lower as well, stock is down 10% this morning. Also down are Alcoa and Intuitive Surgical, which beat but offered tempered guidance as well. Good beat this morning for Regions Financial, we’ll hear from Travelers later today.
Events
It felt much worse that it happened, but the bull rally now seems to be in jeopardy. How can I actually say that with the SPX 500 so close to an all-time high? Well, it’s about the activity and the action under the hood, which is telling me there something smells funny. No question the tech stocks have been hurt the most and some rotation is happening, but without established leadership where is one to put money to work?
Breadth
Once again, positive breadth but the market just fell apart on more rotation. Yes, the breadth was 14-11 to the bullish side but there was better breadth earlier in the day. A bifurcated market now, with negative Nasdaq oscillator and positive NYSE oscillator. New highs barely beating new lows.
Volume
More distribution Thursday, this time on Nasdaq and small caps. Nothing good at all in techs or the Russell 2K, but clearly some buying is happening elsewhere. It just seems nobody wants to step aside completely from the market, and that feel of desperation is troubling. With options expiration today expect to see a bit of elevated turnover.
Support Levels
Ugly across the board, even though some stocks held firm for most of the day, like Apple and Microsoft. It is becoming more difficult to pick out the winners, and if the Monday low gets taken out on a close there could be trouble next week. Sure seems many are hanging onto stocks here before the big earnings are released, that is always a bit dangerous when the signs of caution are flashing.
The Internals
What’s it mean?
Not all the internals were horrible, the VOLD was actually green (that was a last minute move) while the VIX finished off its highs. But ticks were very red, so many sell programs hit yesterday, put/calls elevated. Strikingly, the ADSPD was pretty strong and the ADD positive, not something you see in a rout. Feels like trouble is brewing here.
The Dynamite
Economic Data:
- Friday:Housing starts, import prices, industrial production, cap utilization, michigan sentiment.
Earnings this week:
- 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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