The Fuse
What are futures doing?
Stocks are catching a modest bid this morning after a failure to rise on Friday. Today starts August as the front month for options and while July seemed to be a disaster for the bulls, there has been a lot of volume picking up recently for the current month. Nasdaq futures up nearly 1% so far this morning.
News
Not much help from Europe overnight even as Spain wins the World Cup. The STOXX was down .2% with minor drops in France and Germany. FTSE fell sharply, down .6%, the US dollar index down .1% but gold and silver are on the rise. Crude oil has cooled off a bit. Stocks in Asia were higher, Japan was closed but Shanghai up .9% and Hong Kong solid gains up 2%. Yields are rising, German bunds up 1bp and US 10 yr treasury yields up 2bps.
Volatility
The VIX is coming down a bit this morning but still remains a bit elevated with the potentially longer Iran War. The premium has been re-applied to market volatility, but a couple of closes above 19% shifts sentiment to the bears’ favor.
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Interest Rates
Rates are up on the long end of the curve ever so slightly, if this trend continues this week that will be difficult for the equity bulls to overcome. Inflation continues to be a worry to the Fed even as last week’s reports were inflation-friendly. The 2/10 spread is widening again but may have started to settle down. Fed funds futures see a 14% chance of a hike now, small but by October it is nearly 72% probability.
Earnings
After a big week of earnings from banks we have an array of names coming up, including Alphabet, Tesla, Intel, Verizon, American Express, IBM, and Newmont, and some more smaller banks. Should be quite interesting.
Events
Bearish action to end the week is not good, and with the bombings started again Iran there is no telling when this is going to come to an end. One thing is certain, investors/traders are getting exhausted by all of this banter and would like to see it conclude. Earnings season has been good so far but stock reactions have not been.
Breadth
Terrible breadth patterns over the past few sessions is spilling over to poor price action now, and the bears are starting to get warmed up. The long term trend is still in tact, that is bullish but no question there are chances for that to change. Unfortunately, the calendar is not friendly to the bulls at this time and won’t be for months. Not much of a catalyst to drive stocks up, oscillators are negative again.
Volume
Pretty good turnover on the downside on an expiration Friday is a warning sign for the bulls. No doubt the volume trends have been showing up bearish of late but price action has not been following, but Friday they were in sync. Buyers were nowhere to be found at the end of the week and if the selling spills over, there could be trouble.
Support Levels
Some good support was broken on Friday and closing near the lows of the day tells us there could be even more to come. Given the break of the 20 ma, the next level is the 50 ma, but the Nasdaq is without question the weakest and below this level already. A falling knife.
The Internals
What’s it mean?
Internals got hit by the ugly stick Friday with the VOLD hitting new lows not seen in awhile. We talked about the weakness in this indicator lately, perhaps permeating to poor price action soon. TICKS were heavy red, heavy selling all session long as the VIX rose up smartly. Even put/calls went high, the internals just telling us where the market is at – heading lower.
The Dynamite
Economic Data:
- Monday:Leading indicators
- Tuesday:N/A
- Wednesday:N/A
- Thursday:Jobless claims, KC fed survey
- Friday:new home sales, flash PMI
Earnings this week:
- Monday:DPZ, RYAAY, SMBK, CCK, STLD, ZION, CALX, WASH, WTFC, AGNC
- Tuesday:HAL, VICR, ALLY, DHI, DHR, SCHW, GM , MMM, VMI, MSCI, ALK, NLY AAR, EQT, RRC, WAL, NWC
- Wednesday:GEV, T, PM, TNL, WAB, TEL, PHM, IRDM, MCO, FBP, TSLA, GOOGL, NOW, IBM, TXN, KMI, TCBI, SLG, CCI, CSX
- Thursday:NOK, CLF, AAL, HBAN, FCX, STM, BX, CX, LMT, TSCO, INTC, MXL, DECK, NEM, COLB, BYD, SLM, SAM, RNG, JAKK
- Friday:VZ, CHTR, AXP, NEE, CNI, BAH, LW, SLB, HCA, CPF
Fed Watch:
Kevin Warsh had some tough talk for the markets and Congress this week, vowing to fight inflation with all the tools available at his disposal. In the end, it is more likely a rate hike or two, the fed funds futures are pricing that in. We’ll learn more in a couple of weeks, and then Jackson Hole next month.
Stocks to Watch
Google – The stock took a hefty fall this past week and will report their quarter after the close Wednesday. I’m not sure the beating last week was a warranted, but we’ll see how much color they provide in the call.
Rates – They have been climbing steadily, trying to force the fed’s hand to raise rates at the next meeting. No question the Fed committee is going to be aggressive against inflation, and that means rate hikes. Bond yields may rise before they fall.
Breadth – We have had mediocre breadth on the up days for weeks, finally it is starting to matter that this is not bullish. Perhaps a bit more downside to go into the end of July.
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