The Fuse
What are futures doing?
Equity futures are on the decline following a very volatile session which saw the indices falling about 2% or so on extended volume. Seems the situation in Iran is still ongoing and the markets do not like the continuation of it.
News
Curiously the STOXX in Europe was higher, strange they did not follow US markets but trade is getting volatile. Germany and France both advanced, so did the FTSE. Gold continues its corrective phase as does silver, but down nearly 2%. US dollar index was flat, crude oil slightly lower. Yields are mostly flat across the curve, 10 yr US treasury yields up 1bp. Japan fell again, down 1.9% while China’s markets were down as well, Hong Kong off .6% and Shanghai losing .4%.
Volatility
A good surge in volatility midday took the markets down hard but only up to 23%. This starts the short term moving averages turning upward, and now the VIX is above the 20 and 200 ma. If they cross over soon that will be a bearish sign for the markets overall.
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Interest Rates
A quiet morning along the term structure of rates but it is only going to get more volatile. Are bond buyers going for the safety trade or will the CPI and PPI this week reflect higher inflation coming? No doubt the FOMC will be watching closely, but 2/10 spread remains steady. Fed futures are holding in place, no cuts expected but hikes are being priced in, while junk bond yield spreads are widening out.
Earnings
Solid earnings from Casey’s and Cracker Barrel last night, Chewy and J.Jill will report this morning, later tonight Oracle, Stitch Fix and Oxford.
Events
Another tough day at the office for the bulls as a midday swoosh down took the indices very close to testing their 50 day moving averages. That has been somewhat a line in the sand for this uptrend, but breaking it on heavy turnover and poor technical statistics would be troublesome. Some macro issues were likely the culprit for stocks taking a nose dive but they did recover sharply off their lows, but may test again down the road.
Breadth
Its hard to believe after that horrendous drop that the markets actually had good breadth, but that’s true. Better than 2-1 in fact, that was the case early and then late in the day. Does it matter? Sure it does, but the price action is always the key indicator to watch, the breadth is only supportive. Oscillators are still bearish though but new lows/highs have stabilized a bit.
Volume
One thing we know is when the volume spikes during the day it usually means traders/investors are getting out. That happened early in the day but then that action stopped in its tracks on the bulls managed to scratch and scrape their way back. No question another distribution day is notched on the SPX 500 and Nasdaq, which puts this at 4-6 on recent count. Careful, this is now a red flag alert.
Support Levels
We kinda though last Friday’s lows would not go untested, and actually that did occur today and then some. There are some good levels of support where buyers are interested in adding on larger dips, or perhaps just a bout of short covering. No question if this volatile action continues there will be more concern about the uptrend staying in tact, and. that could release even more sellers.
The Internals
What’s it mean?
The internols were on quite a ride Tuesday with the VOLD and ADD being the snappiest. A sharp move lower in VOLD did not quite get to Friday’s lows as some dip buyers came in hard and brought this indicator into the green. ADD and ADSPD were mostly positive all session, the VIX had a day, cruising up to 22% before giving up many of those gains. Put/call is rising again and remains on a sell signal, we had one in March before the market took a nosedive, so take heed.
The Dynamite
Economic Data:
- Wednesday:CPI, treasury balance
- Thursday:jobless claims, PPI, PCE
- Friday:Michigan sentiment
Earnings this week:
- Wednesday:CHWY, JILL, CHM, ORCL, SFIX, AEMD
- Thursday:LOVE,HOFT, ACB, MH, VRA, ADBLE, RH, LEN
- Friday:
Fed Watch:
No question the committee is looking at this strong labor report and getting skittish over current monetary policy. Perhaps it is a bit too loose? Futures are pricing in rate hikes later in the year, and maybe into 2027. Inflation readings this week will be important markers.
Stocks to Watch
Semiconductor Stocks – This group was hammered on Thursday/Friday with a 1-2 punch to the gut. It’s going to be an uphill climb after the heavy distribution on Friday.
Apple – The big iPhone and pc company has their annual developers conference this week, what might they announce to surprise their customers?
SpaceX – Friday is the day when Elon’s big company finally trades on the open market. It’s been a long time coming and many investors will be able to participate in the offering, but no doubt overbought to start.
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