The Fuse
What are futures doing?
Futures are on the defensive side this morning but still split with the Industrials nicely higher but the Nasdaq and SPX 500 down sharply. This separation has been happening for several days now and might signal more rotation or just a sign of bad things to come.
News
Stocks in Europe had smaller gains, up .2% in STOXX with better gains in Germany and France. The FTSE gained .1%. The US dollar was flat, gold down about 1.4%, silver down 2% and crude oil off 1.5%. Yields are down modestly, the 10 yr US treasury off 4bps while German bund yields dropped 1bp. In Japan the Nikkei fell sharply, off 4%, Shanghai down 1.2% but Hong Kong up .2%.
Volatility
The VIX premium remains in tact with the fear index sitting around 19%. That is not a huge number, is is the historical norm but the trend in vix is starting to turn upward, and if that happens the stock market will feel some pain.
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Interest Rates
Seeing a nice drop in yields on the long end of the curve, perhaps a setup before the Fed meeting beings (today). 10’s, 20’s and 30’s all down in yield as bargain hunters join in, some big treasury auctions later in the week. Fed funds futures see a 38% chance of a hike tomorrow, 3 month yields predicting 100% chance of it happening, and Citadel predicts a hike. High yield remains robust.
Earnings
Solid earnings from Celestica last night and guidance, but the stock went higher and fell sharply overnight with tech selling down. Applied Digital mostly in line. This morning UPS with a beat and raise, later we’ll have Boeing, Paypal, Coke, Corning and JetBlue. Tonight Bloom Energy, Visa, Enphase, Seagate, KLA, and Ford.
Events
Stocks pushed higher on the open but as we have often seen the sellers faded all day long. In fact, lows were pretty deep and did break Friday’s lows, it was an outside day to the downside Monday. It’s strange because there was strength seen in certain groups but the heaviest names were weak and dragged down the higher end of the market. Seeing some strength in software names as a reflex rally, nothing more.
Breadth
Another day of positive breadth but it was less impressive at the end than at the beginning. There seems to be little energy each day even if the bulls get a big gap up like Monday. The shorts come in to cover, the sellers soon come out and the market fails to hold. Oscillators improved slightly but are still bearish, new highs slightly beat new lows again, this indicator is neutral.
Volume
Lower turnover for the indices again as it appears traders are on hold for the big earnings and release of the fed policy statement. Perhaps we’ll have some clarity after these releases but suffice to say the market indices are in a corrective phase. Only four trading days left in the month of July and so far it has been a bust.
Support Levels
More probing of support as the Nasdaq fell from grace again Monday. However, the lows did hold but we’ll call it a bearish session, with a big rejection at the highs of the day. Volatility returned as well, even though there was a TACO over the weekend, that did not inspire any buying in this tough environment. Certainly a stock picker’s delight here, indices are just rotten to the core.
The Internals
What’s it mean?
At the open we were certainly expecting to see a blockbuster sort of day but that was not the case at the close. VOLD was positive but not running hard today, same for ADD and ADSPD. Ticks had their share of buy and sell programs, plenty of red and green to go around. Put/calls remain elevated, VIX started lower but finished modestly higher end of day. So much for the taco trade.
The Dynamite
Economic Data:
- Tuesday:Economic indicators, inventories, consumer confidence, fed meeting begins
- Wednesday:Interest rate policy decision
- Thursday:Jobless claims, GDP first look, PCE prices
- Friday:employment cost index, chicago biz barometer, michigan final survey
Earnings this week:
- Tuesday:PYPL, BA, KO, UPS, DINO, GLW, JBLUE, RCL, BE, STX, ENPH, KLAC, V, TER, TLRY FO, CAR, CAKE
- Wednesday:SOFI, VRT, BSX, APH, FLEX, CTSH, ADP, PG, HUM, MSFT, META, HOOD, ARM, ORLY, LRCX, CMG, FTNT, AEM, QCOM
- Thursday:BM Y, CI, MA, VLO, MO, STLA, PWR, OWL, RACE, AAPL, AMZN, RBLX, RDDT, DRH, RIVN, HUN
- Friday:XOM, CCJ,, MRNA, AN, CVX, D, ABBV, MGA, CHR, CL
Fed Watch:
The second meeting of the Kevin Warsh Chair era begins this week and there will be some wrangling. Already at the last two meetings the sides were drawn against and for hawkish policy, though most were right down the middle. The committee will slowly come around to Kevin Warsh’s way of thinking about inflation.
Stocks to Watch
Mag 7 – Save for Apple, this group has been crumbling, and yes that even includes NVIDIA. Four of these names report this week and three of them have very ugly charts (MSFT, META, AMZN). Can they overcome?
Rates – Again we must pay attention to rates as the 2 and 10 yr yields moved up prominently this week. 4.7% on the 10 year is brutal for markets.
Options – Being the last week of the month we could see quite a bit of positioning if gamma is negative, meaning stocks could go down considerably if there is no bid around.
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