The Fuse
Equity futures ar jumping around this morning, a mixed picture after Monday’s strong comeback day. After three very negative sessions the bulls stepped up and pushed the markets up by 1% or so. It was a key session as the SPX 500 was a flirting with a break below the 20 day moving average, but today’s session is more important for a followthrough day.
Interest Rates are slightly lower as the yield curve widens. We still see the Fed next week doing nothing on monetary policy but considering a shift towards a more dovish stance. Clearly recent data that is positive towards inflation will be discussed. Small cap stocks continue to beat the drum of lower interest rates.
Stocks in Europe were mostly flat but big software company SAP beat and raised earnings guidance. Gold is up strong while crude oil is down slightly. The dollar is flat, Japan overnight was also flat while China’s markets were down. Stocks continue to drift as more earnings come pouring in this week.
Earnings last night from NXPI were a flop, Cadence Design was okay but guidance was suspect while UPS was poor. GM had a beat and raise as did GE on strong demand. Tonight we’ll hear from GOOGL, TSLA and Visa among others.
What was a positive day did not really feel like it. Oh sure, the internals were strong and the bulls fought off some early selling and volatility but there seemed to a spark lacking. Maybe it’s because my expectations are higher now, especially during earnings season. We’ll have quite a bit of volatility the next few weeks but we need to be focused on the trend, which is trying hard to re-establish the uptrend of higher highs, higher lows. So far, no trend yet.
Breadth was very strong Monday with advancers just drilling decliners. It seems the three day selloff may be over, but as usual we like to see followthrough, and if so we could start targeting higher levels. Oscillators came down hard last week but they stopped at the 50 day moving average, just above zero. New highs are still lower than before but are starting to make some noise again. Volume trends with breadth are troublesome but can be rehabilitated in a couple of positive sessions.
Volume receded following Friday’s expiration day for July. Still, bullish price action all session long and a big drop in volatility set the stage for a strong up day. We are looking for better turnover today and later in the week to put this indicator back into the bullish column. The further way distribution is the better off for the bulls.
We did not test lower levels on Monday as the bulls were running wild all session long. This sets up however a ‘turnaround Tuesday’ pullback, where we could see lower levels tested if volatility starts to pop. With earnings season and the high bar raised that could be the issue, however we do have moving averages racing higher to meet price levels, so even a pullback might only be very shallow.
The Internals
What’s it mean?
It was a rather strange session. Sure markets were higher but volume was lower than Friday, not unexpected. The VOLD higher but not extreme, VIX much lower and the put/calls down. I guess I am looking for perfect, but that is often unattainable. Ticks were mostly green all session long, a ton of buy programs hit that seem to spell trouble for the bears if that continues.
The Dynamite
Economic Data:
- Tuesday:S&P flash services PMI, manufacturing PMI
- Wednesday:new home sales
- Thursday:jobless claims, GDP first look, Durable Goods, inventories
- Friday:PCE, consumer sentiment
Earnings this week:
- Tuesday:ACI, HCA, LMT, PCAR, PHM, DGX, UPS, TSLA, V, GOOGL
- Wednesday:T, SLAB, IBM, KLAC, NOW, URI, WM, F,LVS, WHR,CMG
- Thursday:CMCSA, DOV, DOW, HON, KBP, LAZ, MAS, NOC, POOL, STM, DECK, HEES, JNPR, RKU TEX
- Friday:MMM, CL, SXT, CHTR, CNT
Fed Watch:
No Fed speakers this week as the committee is in their quiet period before next week’s meeting. The data seems to be playing out in their favor albeit a bit slow. That’s fine, the Fed Funds remains high and restrictive just in case inflation starts to rise again. Chair Powell did recently say he believed the next move on rates would be a cut but was short of applying a time, as is usually the case.
Stocks to Watch
Small Caps – What a move for the small caps over the past couple weeks. Amazing price action, strong volume and very positive breadth have stoked a massive catch up. Will it continue towards the end of the month?
Technology stocks – This group has been hammered recently as some of the froth has been removed. Further, the uncertainty over how a new administration would create policy is also a question mark that leads investors to be more cautious. If you have a huge gain in something like NVIDIA, you take some off before any ‘black swan’ bad news becomes known.
Inflation – The PCE will be released on Friday morning, a favored indicator of the Fed for monetary policy. The trend has been lower for inflation, will it continue?
