The Fuse
What are futures doing?
Futures are battling back a bit after getting poleaxed on Wednesday, a massive selling day following the Fed policy decision. It seems the market did not appreciate with Kevin Warsh had to say in the press conference, but after falling several days the bargain hunters are out. Good earnings from Microsoft are helping.
News
Europe did not follow the lead in the US, the STOXX rose up .2% led by gains in France. FTSE gained .1%, gold is higher by nearly 1%, crude down a buck. US dollar index rose .1%. Yields are climbing after yesterday’s rise, bunds and US 10 yr treasuries up 1bp. In Japan the Nikkei rose .7%, Hong Kong up .2% but Shanghai down .6%.
Volatility
The VIX popped higher on Wednesday as the bears transitioned into the driver’s seat. Perhaps this is just a mild correction but we’ll have to wait and see if that is the case. VIX has yet to close consecutive days above 19% since early June.
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Interest Rates
Following the Fed’s moves is difficult with these markets, but they stood pat yesterday and market volatility went wild. Stocks initially rallied on the news but then slowly turned and then accelerated to the downside. Rates had been higher but gathered more steam, worries about inflation fighting credibility. Words just won’t cut it. High yield spreads are widening, signaling some trouble may be brewing, fed futures seeing a good chance of a hike at the September meeting.
Earnings
Big earnings from Microsoft and Meta, each stock following a different path though. ‘Softy is up sharply but Meta is down hard, weaker numbers for that one. Fortinet posted a strong beat and good guidance, Qualcomm with a miss but ARM showed good numbers but is down with much of the semis again. Lam Research a solid quarter, that stock is higher. Chipotle even posted better earnings, this morning huge beat for Valero and Quanta. Tonight we ahve Amazon and Apple among others.
Events
The rubber meets the road, and Kevin Warsh made all the bulls roadkill. It was a no move decision by the Fed yesterday, but some dissents of some voters preferring a rate hike. Clearly Chair Warsh was on the side of being patient, but the market does not want patience if the Chairman is talking about bringing inflation down to 2%. Several economists questioned his motives, then the flood of sellers engaged.
Breadth
Horrendous breadth as this indicator is back on a sell signal. No doubt the double talk from Warsh was enough to drive the bulls away for now, there is worry that the uptrend may be ending soon. Bonds were not liking the message either but gold enjoyed it. Oscillators on a sell signal, new lows starting to grow vs new highs.
Volume
Distribution day all around for the indices, especially on the Industrials which fell more than 2%. The Nasdaq was showing good RS early in the day but that fell by the wayside as the sellers took control, which they mostly had from the start of the session. If we see more of these days cluster then it could spell trouble for the bull trend.
Support Levels
We talked recently about some lower levels of support that looked to be good targets, and they remain in sight. Nasdaq clearly looks like it has a date with the 200 day moving average, about 4% lower. The IWM broke the 50 ma and now could make a run to the 100 ma at 277, while the Industrials fell and closed right on the 50 ma, if it cannot rally we could see the 100 ma up next, quite a ways lower.
The Internals
What’s it mean?
That was some drop in the markets, confirmed by deep weakness in the internals. VOLD and ADD pretty much tell the story, all selling all the time. Also, ticks were mostly red all day, a swath of sell programs hit all session long. Put/calls are still moving up, the VIX rose 10% but it probably could be up a bit more if the selling continues this week. Just a nasty day and leaves the bulls vulnerable.
The Dynamite
Economic Data:
- 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:
- 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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