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The Fuse
Equity futures are trying to bounce back this morning after getting pounded down Wednesday on heavy turnover. That was a distribution day for stocks (save the Industrials), and if there is some followthrough a change in trend or correction may be at hand.
Interest Rates are slowly rising again as the 10 year fell below 4.2% but is trying to rally back above that level. Short term rates are bending lower too but there is only so far until they reach a point where the Federal Reserve policy (current) starts to weigh. Sure, Chair Powell is leaning towards more dovish policy but the market need not push him too much, else a much worse outcome will be felt (like in the Spring).
Stocks were hammered hard yesterday but stocks in Europe were higher by about .3%. Crude oil is unchanged, gold is up modestly while the dollar fell. It is expected the buck will fall if a Trump/Vance ticket wins in November. Stocks in Asia were mixed, Japan down sharply, roughly 2.4% while Shanghai and Hong Kong rose.
Earnings last night from United were down as capacity remains a problem, hence pricing. Today we got a beat and raise by Taiwan Semi, which may help that group. Domino’s is down hard on a miss while we’ll hear earnings from Netflix, DR Horton and Intuitive Surgical later in the day.
What comes around, goes around. Recent strength in some of the indices took the market to a dark place – a deeply overbought condition. When that happens it is just a matter of time before the late bulls get clocked. That likely happened on Wednesday with very poor action in tech, Nasdaq names and the SPX 500. Industrials on the other hand were very strong and rallied sharply to new highs. The bifurcation continues.
Breadth was poor on Wednesday but not as bad as the market action would indicate. Small caps again helped buoy the action, the short covering from last week continues. Oscillators reached very high levels Tuesday and declined some yesterday but are still at elevated levels. New highs expanded again versus new lows, that indicator remains on a buy signal.
Very heavy turnover from the start in the Nasdaq and SPX 500 led these indices to a distribution day, first one in a week. As these stack up the overall trend and momentum comes into question. For now, a one day pullback only signals a removal of some froth and not anything more serious. The condition can be rehabilitated in a few days.
What a pullback in the SPX and especially the Nasdaq, the latter index ran about 800 points in 24 hours. The 20K level held firm on the NDX futures, but there were many sellers taking the index down close to 3% at one point. Support at 5,600 (tepid) on the SPX 500 fell but it can be fixed if the market recovers in a couple of sessions. IWM support at 120.
The Internals
What’s it mean?
You’ll see the internals not nearly showing the ‘badness’ of the market action from Wednesday. That is due to the continued bifurcation of the market, small caps and Industrials leading the way. VOLD was negative but not tragic while the VIX rose up sharply. Ticks were moderate on both sides, the put/call higher on the day. This is an important day here to see if there is a reversal or continuation.
The Dynamite
Economic Data:
- Thursday:Jobless claims, leading indicators
- Friday:Japan Inflation rate (June)
Earnings this week:
- 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.
