The Fuse
Equity futures are blasting higher this morning as some rocky volatility starts seeping into the markets. Yesterday we experienced a wild rollercoaster right with markets falling sharply, rallying ferociously and then falling hard. All told, the SPX 500 moved down 40 handles, up 100 handles then dropped 90 handles! Whew, that was exhausting. Perhaps next week we’ll have a bit more calmness but I doubt it.
Interest Rates are falling a bit this morning as bonds catch a nice bid. The 2 year yield continues it’s journey lower and is now at 4.4%, a sparse difference with the 10 year yield. That inversion is narrowing quickly. With lower yields it means small caps are ready to rip. Fed futures still is pricing in close to three rate cuts in 2024.
All of this volatility is making investors and traders very nervous. Given the stakes here with the upcoming election and a potential pivot in monetary policy. Overnight stocks in Europe were up sight, gold is recovering with a near 1% gain but crude is lower. Japan declined .5% while Hong Kong and Shanghai were up modestly. The dollar is down .1%. Today we’ll have the all-important PCE for June, yesterday it was reported the economy grew 2.8% in Q2.
Earnings were very strong from Deckers last night but very very poor from Dexcom, that stock is getting walloped. 3M had a big quarter and raised guidance. Texas Roadhouse also with a strong report, Skechers is up as they announced an upbeat outlook and a huge buyback. Big tech earnings come out in the coming week.
We’ll call this market the sidewinder. Down 30 handles, up 90 handles, down 90 handles! What moves this market has made, and that was just yesterday. Incredibly volatile market that means investors and traders are getting nervous. The lack of calmness and confidence each day is going to make this market difficult to trade. Worries of course abound about reactions to earnings and if stocks are priced for perfection. It just might be.
Following up on the worst day of trade in nearly 20 months stocks could not pull a reversal. This shows how truly weak hands are as gravity takes hold. What goes up must come down and trying to pinpoint an exact reversal level is useless, tops and bottoms are losers game.
Breadth was pretty strong on the day as small caps led the charge, a robust 1% move (but down from the highs). Oscillators moved back up but it was of no consequences to tech, which was sent down by end of day. Nasty selling late ensued with the SPX dropping some 50 handles in the last 30 minutes. New lows are starting to rise up but the new high/low indicator is not yet on the bearish side of the ledger.
More heavy volume early and late as sellers cleared trades that spilled over from Wednesday, stepped in and did some buying midday and did some drastic selling late. All in a days work! Big moves in the indices are now priced in to drive people crazy, and we’ll see some heavy volume moves while the conditions are current. With the PCE coming out this morning and a fed meeting on tap next week, expect to see more high volume prints.
More levels lower were probed and planted end of day. We saw a break of 5,400 as the gap at 5,375 was nearly closed but no cigar. Nasdaq is really in worse shape, now with 100 day moving average at 18680 coming into play, below there some gaps to fill all the way to 17,300. Industrials had a rough day but finished right above the 20 ma. That may not hold here if markets sell off one more time. Not oversold on the daily chart.
The Internals
What’s it mean?
A strange day, where markets started flat, went lower, rallied hard (90 handles) then lost it all in the end. After Wednesday’s rout there is clearly a lack of confidence in traders and investors. The VOLD barely budged, we can see the up/down in the ADD and ADSPD, the VIX is still climbing. Check out the ticks, green early and red late. Tells us about the rhythm of the market and how poor the momentum is (to the upside). Caution here.
The Dynamite
Economic Data:
- Friday:PCE, consumer sentiment
Earnings this week:
- 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?
