The Fuse
Equity futures are sharply lower this morning reflecting weakness from overseas and poor earnings from some big tech names. If this drop sustains itself it would completely wipe out the gains from Monday’s strong session.
Interest Rates are pretty flat as bonds are rather steady. The Fed meeting next week is likely to move markets if the committee starts talking about interest rate moves. More importantly, GDP and PCE data this week will be critical to their discussion, market volatility is up in anticipation.
Stocks in Europe were sharply lower as were those in Asia. Hong Kong and the Japan Nikkei were down more than 1%, Shanghai off about .5%. The mood on Wall Street is pretty dour right now with equities perhaps being lower 5 of last 6 sessions. VP Kamala Harris is nearing nomination and is picking up endorsements along the way. The dollar is flat, gold is slightly higher while crude up moving up as well.
Earnings from Alphabet were strong but a sell on the news is happening, Tesla was solid on revenues but missed on the bottom line and is sinking fast. Big tech is taking a hit today and that may continue on into Friday. Visa is also down sharply. Tonight we’ll hear from Ford, IBM, Chipotle, Whirlpool and Las Vegas Sands.
So much for a followthrough day. Turnaround Tuesday was at work most of the session, indices were down sharply but with some good earnings out pre-market the damage could have been worse. Perhaps many were waiting on more data which came in weaker than expected, but frankly there continues to be profit-taking from the start of the month. That may get cleaned up later in the week.
Positive breadth in the end but not great, in fact the breadth deteriorated all session long. Oscillators still managed to move a bit higher but barely. New highs are climbing again, that indicator is pushing towards a buy signal. But with weaker internals (see below), the market is certainly facing some challenges. It is difficult to determine if this is simply a mild corrective phase (sideways) or something more ominous. So far it seems the former, but the action is quite sloppy.
The only saving grace for a down session is that volume was low. That by itself is not great, we like to see volume expanding when stocks are moving but a low volume day when stocks are down is much preferred than higher turnover. Nonetheless, stocks are going through the washing machine rinse cycle and simply are waiting the machine to stop moving.
A very shallow range and without a test of much lower levels, in fact finishing on the lows from Monday on the SPX 500 and Nasdaq. Small caps fared much better as that recent low in the mid 210’s is holding up nicely. The SPX 500 continues to straddle the 20 ma, frustrating many players. The Nasdaq is sitting in a no mans land, trying to find a direction. Perhaps after the big earnings are delivered we may get some direction.
The Internals
What’s it mean?
Internals were not very exciting on Tuesday, perhaps the thunder from Monday was too much to handl. VOLD movement was non-existent as was the ADD, ticks were mostly green but towards the end of the day some red appeared. The VIX is the indicator to watch, a close under 14.19 will put that in a market buy condition. Perhaps some earnings releases later in the week will influence volatility sellers.
The Dynamite
Economic Data:
- Wednesday:new home sales
- Thursday:jobless claims, GDP first look, Durable Goods, inventories
- Friday:PCE, consumer sentiment
Earnings this week:
- 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?
