The Fuse
What are futures doing?
After a ripper day the futures are gaining some traction. Stocks are poised to rally at the open with the Nasdaq leading the way, strong earnings and guidance from Amazon doing the trick. Also solid numbers from Chevron this morning is helping to lift the industrials. Last day of trading in July.
News
Solid gains in Europe as the STOXX index followed the US performance, led by very good days in Germany and France. The FTSE rose, adding .6% while the US dollar index climbed .2%. Gold is down about 1%, silver off a bit more while crude oil is stabilizing. Yields are falling modestly as bond buyers add to positions. Japan ripped higher, gaining 4%, Shanghai up .7% but Hong Kong was flat.
Volatility
Market volatility is down here after getting smacked hard on Wednesday, the trend in volatility is still bullish. We did not see a second close above 19% and that meant vol sellers could step in.
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Interest Rates
Can the market continue higher if rates are elevated? Some believe this one day rally is the catalyst to push markets to new highs, that may happen but not after some wrangling. Rates need to come down, and that only happens if short term inflation recedes. The term structure seems to believe this as well. High yield had a good day yesterday and rallied, spreads tighter. Fed funds see a 2-1 chance of a hike at the next meeting.
Earnings
Tremendous quarter and guidance from Amazon that stock is pushing markets up this morning. Apple with a really good quarter all around but offered up soft guidance, that stock pulling back a bit. Roblox and Reddit getting hit hard following in line or missed quarters, Rivian had a good quarter though. Chevron cooking as well after a solid beat.
Events
That was some rally! Stocks shot out like a cannon from the start of the day and never looked back. It was a definitive reversal from Wednesday’s smash session, so maybe all is right again for the bulls? Not so fast, as impressive as this rally was there needs a bit of confirmation or followthrough. End of the month today could be the trick, but let’s wait for it before getting excited about yesterday.
Breadth
Interestingly, breadth was only good not great, just not a rout of the bears as one would think. Oscillators are back to green, which is bullish and new highs just crushed new lows. It’s all about today though.
Volume
Interesting too, only an accumulation day on the Nasdaq, as tech dragged up all the rest of the indices. There is a chance for more upside though on bigger volume today, especially being the end of the month. It might be the trick that brings the markets back towards the old highs, which are not too far away. Seeing some good action in the old line tech which sported some very good turnover.
Support Levels
With the SPX 500 and Nasdaq still below the 50 ma these indices still have something to prove, a higher high and higher low might just do it. No question the Industrials had an important bounce off the 50 ma yesterday and Wednesday, given the recent pullback was deep and quick there is a good chance this bounce has legs.
The Internals
What’s it mean?
Quite a day for the bulls but not overwhelming for the internals. Notice the VOLD and ADD, which did not completely push out the bears. Big move though in TICKS and the VIX, which were strong all session and down for volatility. Seems put/calls retreated a bit, which clears up the picture some. A good VOLD and ADD day would cinch it.
The Dynamite
Economic Data:
- Friday:employment cost index, chicago biz barometer, michigan final survey
Earnings this week:
- 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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