The Fuse
Equity futures are down again following through on the worst trading day in about two years for stocks. Nasdaq fell hard and through the 50 day moving average, the SPX landed right on it. A couple more sessions of down and lower oscillator numbers will set up a powerful rally. Volatility is rising up.
Interest Rates shot up yesterday as strong PMI numbers indicate continued strength in the economy. We’ll have some inflation-related reports later this week but the rise in the long end of the curve is telling us something bad is around the corner. The yield curve is flattening out. Fed futures still see more rate cuts than the Fed has talked about, that may also cause the markets to retreat if the futures market suddenly gets in alignment.
Aside from the very large move down in US stocks yesterday, China surprisingly cut rates again, oil prices are dropping sharply as is gold, which is down 2% ore more. Silver is also lower. Stocks in Europe fell hard with the US, down 1.2% on the STOXX, the dollar index down .1%. Stocks in Asia were weak with the Nikkei down 3.3%, Hong Kong down 2%. Followthrough is key if this trend were to continue.
Earnings from RTX and ABBV were strong, they both raised guidance. However, American Airlines is reeling from a bad report. Last night a strong report from IBM, ServiceNow and Chipotle were stoking gains in those names. Tonight we’ll hear from Skechers, Deckers, Dexcom.
Stocks really got pasted on Wednesday, there were not any pushes to the upside and even the small amount of buying only attracted more sellers.
Rates jumped up and that is poison for stocks especially small caps. At this point, markets would need to settle down and stopped retreating if buyers were to re-enter.
At some point the selling will subside, we are just not there yet.
It was the worst trading day for markets since late 2022, right before the bear market ended. What was so telling about this horrific day was the lack of participating in the small caps, which tried to rally but failed to create some excitement. The Nasdaq was DOA and that lasted all session long, the biggest wipeout in years. More than 3.5% down on the session took out all gains from the start of the month.
Breadth turned down at the start of the session and was held up by the small caps but the selling pressure was intense enough to push the IWM lower, too. Oscillators went negative and if there is some followthrough down it might continue, yet short term the markets are oversold (but not on the daily chart). New lows are starting to expand again and that will eventually spell trouble.
Traders were intent on selling stocks and did in a big way. Nasdaq volume rocketed higher, the SPX 500 also with an extreme move. The rout was on from the start, heavy sell programs all session following poor earnings from big names Tesla and Alphabet. Given the exposure to these and other big cap names it is not surprise Nasdaq led volume statistics. The Industrials also pushed down hard and had a distribution day, it’s fourth in a week. As these accumulate we should be mindful this could be more than a correction.
We had been looking for areas of support for the markets since this rise above 5,450 started things but when you have an avalanche of selling like Wednesday those support levels fail miserably. That was the case here yesterday, but the SPX 500 did land right on the 50 ma, right at 5.430. That might be enough to attract some buying attention so it is more important to watch the development rather than jump in with both feet. Many pullbacks can be bought but this was a big one and has carried over from last week.
The Internals
What’s it mean?
That was some selling yesterday. Markets got thumped hard, and we can see it in the internals. The VOLD just miserable, down all sessiong long, the ADD followed as well to some deep negative readings. The VIX was bullish, but not for the markets as it reach nearly 19%. Ticks were red all day long, especially on the Nasdaq where very few green arrows were seen Put/calls were on the rise. The damage was harsh and it will clearly take heavy lifting and better sentiment to move markets back up.
The Dynamite
Economic Data:
- 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?
[thrive_le
