The Fuse
What are futures doing?
Equity futures are rallying smartly today, much like we saw on Monday but that rally fizzled out all session long. It seems to be a strong bid this morning led by strength in semis and other groups. Nasdaq futures up nearly 1.3%.
News
Seeing slight participation from the bulls in Europe with the STOXX index up .1%, same sized gains in Germany and France. FTSE lost .2%, gold is higher along with silver and crude is gaining some ground. The US dollar index was down .1%. Yields are mostly flat across the curve, but German bunds up 1bp, stocks in Asia were higher as Japan gained 3.3%, Shanghai surged 1.8% and Hang Seng up .2%.
Volatility
The VIX is down this morning but aligning with vx futures as they will roll to August starting on Wednesday. There is still a hefty premium in the futures so that is bullish for markets. You can see that right here. https://vixcentral.com/.
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Interest Rates
Rates are flattening as fixed income investors do not see too much upside coming in the days ahead. 2/10 spread is quiet, high yield spreads are steady while the 10 yr is trying to breakout past 4.6%, which is bearish for stocks. Fed futures still see only a slight chance of a hike next week at the FOMC meeting.
Earnings
Strong earnings this morning from 3M with a beat and raised guidance, same for GM but Danaher missed badly as did DHI. Tonight we hear from Alaska Air, Annaly, EQT and a few regional banks along with Range Resources.
Events
More bearish action Monday but it was the reversal from the highs that looks really bad. At the open it appeared the bulls took some control of the situation but the sellers came out and hit the markets pretty hard, the Industrials taking the brunt of the punishment. No question about it, the bulls have an uphill climb to get the trend back in their favor, will earnings season do the trick?
Breadth
Breadth remains on a sell signal though we do continue to have a bifurcated market. Nasdaq has been horribly weak but actually outperformed on Monday, though it seems shallow. Oscillators are both in the negative and new highs shrank on Monday vs new lows. We’ll see if that trend continues, but this indicator is still on a buy signal.
Volume
Weak turnover is the only positive about Monday’s trading, but that could change today. Given the fact buyers are on strike until some earnings clarity, the bears have had their way the past few sessions. We have not had any sort of washout, it feels like a rug pull can happen at any minute, of course that would include larger volume selling.
Support Levels
We continue to see stocks fall to support levels, the Industrials took the worst of it and remains in big trouble. The 50 ma is just about 1.2% lower, that move might freak everyone out but would be a good place to test support. The Nasdaq is in a freefall and if 690 does not hold there is a good move down to $640 coming up next.
The Internals
What’s it mean?
Another case of a good start for the markets and internals, then a big thud and pullback to finish very poorly. Just look at the VOLD and ADD, which are firmly on sell signals. VIX hit its low of the day at the open and rose from there, ticks were mostly red, plenty of sell programs to go around. If this is chop fest time neither bulls nor bears are appreciative.
The Dynamite
Economic Data:
- Tuesday:N/A
- Wednesday:N/A
- Thursday:Jobless claims, KC fed survey
- Friday:new home sales, flash PMI
Earnings this week:
- 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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