The Fuse
What are futures doing?
Modest upside to equity futures this morning as a few bigger earnings trickle before the opening bell. Stocks are poised to finish lower again as the month of July may prove critical to defining the next market trend.
News
European stocks were higher overnight giving the US futures a boost. The STOXX index was higher by .2% led by a strong gain in Germany. The FTSE added .1%, the US dollar fell .2%, gold and silver are adding small gains. Yields fell slightly for the first time in days, German bunds and the US 10 yr treasury both down 1bp. In Japan the Nikkei declined 2.7%, China’s markets were lower with Hong Kong off 1.2% and Shanghai down 1.6%.
Volatility
Market volatility rose smartly on Thursday but settled down to finish near lows of the trading day. Nonetheless, rising crude prices and uncertainty about the Iran War has put investors/traders in a precarious position, not able to figure out a direction. Hence, hedging with puts is the right move expecting higher volatility.
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Interest Rates
Given the sizable move in rates over the past several sessions it is inevitable to see them fall a bit, even if there is worry out there. Bargain hunters are going to come in and bite, so this morning yields are down across the curve. The 2/10 is starting to retreat again but only because the 10 yr is moving faster to the upside. This may get reconciled at next week’s fed meeting. Junk yield spreads are still tight, now seeing a 33% chance of a hike at next week’s meeting.
Earnings
Intel with some magic on their earnings but the stock is only up 3% after rallying 11% early. Strong guidance as well should buoy the stock going forward. Newmont had strong numbers, Deckers missed. We saw weakness in American Express revenues, a miss on the top line by Verizon and Charter looks messy. Very strong numbers from SLB.
Events
Very difficult day for the bulls and trying to turn the tide. Indices were on the defensive all day but as per usual there were some stocks that moved higher, defying the gravity pull from those high prices. Names like Micron, Lockheed Martin, Union Pacific and TMO were up sharply on the day but the trend is shifting downward.
Breadth
The bears have the advantage with poor breadth statistics for weeks, this indicator remains on a sell signal and is very close to being oversold. That of course is not a signal to buy. Oscillators pretty well negative but not a juicy low yet, new lows really expanded vs new highs, this indicator may soon be on a sell signal, intermediate.
Volume
Strong volume to the downside yesterday as all of the indices notched a distribution day. We are starting to see these cluster up, that could be a big problem for the bulls in trying to turn the market back around. You see, big distribution days are large investors cutting stocks and maybe getting short, we have also seen big put buying in futures as well. Caution here.
Support Levels
The IWM hit the 50 day ma and finished right on it, the Nasdaq continues to drift lower while the SPX 500 gapped below support and is also drifting towards lower levels. Not quite oversold yet but getting close, there are just too many investors fearing they will miss out on a taco trade.
The Internals
What’s it mean?
That’s more like it! At least the internals were in line with the stock market today, the VOLD getting crushed and closing on the lows of the day, ADD was weak and volatility spiked during the day but did back away some. Put/calls again on the rise, investors are buying stocks but also buying protection at the same time, ticks were heavy red all session long, hardly a buy program to be had. Fridays are not always great and bottoms are rarely made on a friday.
The Dynamite
Economic Data:
- Thursday:Jobless claims, KC fed survey
- Friday:new home sales, flash PMI
Earnings this week:
- 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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