The Fuse
Seeing a nice rally in equity futures this morning after a quiet news weekend. Stocks are pushing higher with better turnover lately and a broadening out of the rally that includes small caps. The IWM is important to be a participant if the market were to rally further.
A nice rally underway in fixed income has yields down this am. The 2 yr is down at 3.88%, reflecting two cuts by the fed over the next couple of years. High yield remains strong and will as long as the economy is robust. Fed futures looking for 2 1/2 cuts this year, 30 yr treasuries back under 5%.
Stocks have been up for nearly two weeks straight but last night no help from Europe. STOXX was flat and the FTSE rose up only .1%. The dollar index fell .2%, gold higher as is silver, crude oil slightly lower. German 10 yr bund yields fell sharply, down 4bps as inflation may be easing, 10 yr US treasury yields also down 3bps. In Asia stocks were higher, Japan was closed but Hang Seng gained .6% while Shanghai was up .7%.
Earnings will be big this week with IBM, Google, Chipotle, Intel, SAP, Tesla, and Ge Vernova among others. Many names getting set to report have moved up sharply, and like Netflix may retreat following earnings even if they are strong.
With markets at/near all-time highs we proceed with guarded optimism. No question new highs are bullish but that often leads to last minute buyers coming in for a ‘bite’ of the market. That timing is often misplaced and could lead to some heavier selling. Why is that? Basically when the wall of worry is up as it is the market can climb.
Breadth was poor Friday but not unexpected on an expiration day. July monthly calls went off the board and now August if front month. Given the strength of the market lately it makes sense to see a bit of profit taking. Oscillators are back in the red, new highs have simply stalled out. We could be muddling through for the next few weeks.
Good, strong volume for the IWM and QQQ on Friday but these indices did fall. Hence, this would be considered a mild distribution day. Nothing to worry about here as so many accumulation days have been racked up lately.
Support levels can be seen with short term moving averages. Our favorite is the 20 day ma, which is having a steep climb on all the indices. That’s good for now, but eventually when it fails to hold there will be sharp pullback. If the market continues to rise these short term moving averages (10, 20 for example) will continue to support price levels. Bigger support about 3% lower on the indices.
The Internals
What’s it mean?
Not much here to get excited about. Internals were pretty weak on this expiration Friday, after some very strong days earlier in the week but bulls took a rest. Ticks were pretty red however and the VIX lower, ADD was weak and the VOLD just had no zip at all. We may see some excitement this week as the earnings come flowing in much faster.
The Dynamite
Economic Data:
- Monday:Leading indicators
- Tuesday:Chair Powell opening remarks — banking conference
- Wednesday:Existing home sales
- Thursday:Jobless claims, PMI’s, new home sales
- Friday:Durable goods
Earnings this week:
- Monday:NXPI, VZ, DPZ, CLF, AGNC, STLD
- Tuesday:LMT, KO, DHI, GM, RTX, DHR, NOC, ISRG, SAP, ENPH, TXN
- Wednesday:GEV, FCX, FI, TMO, T, HAS, NEE, TSLA, GOOGL, NOW, IBM, CMG, ALK, MOH, URI
- Thursday:AAL, BX, NOK, DOW, LUV, FLEX, UNP, NDAQ, KDB, HON, INTC, NEM, DECK, BYD
- Friday:CNC, HCA, AN, CHTR, TNET, SAIA
Fed Watch:
Not much on the calendar but Chair Powell will give opening remarks at a banking conference. The committee is in blackout period as they prepare for their next meeting coming up soon.
Stocks to Watch
Tesla – Earnings out this week for the big EV car maker as estimates are all over the place. Did Elon come back soon enough to make a difference and will he come up with some surprises?
Google – Also reporting this week, the big search company is working to diversify their revenues enough to show regulators there is no need to break up the company due to antitrust issues. The stock has been a poor performer and may start to catch up soon.
Volatility – We continue to live with a low VIX and that means the market is highly complacent. With all the worries in the world this makes the market that much more vulnerable.
