The Fuse
Equity futures are rebounding this morning after a wild and crazy session Friday. Last week saw futures pounded overnight Thursday but did manage a strong recovery during the day but only to fall hard at the close. Traders are looking for a bit of upside recovery before the Fed meeting gets underway.
Interest Rates are up a bit following a sharp dive in yield Friday. High yield remains well bid, the 2 yr yield remains quite strong at 4.8%, fed futures show only a slim chance of a rate cut this week.
Stocks pushed higher overseas, the STOXX in Europe higher by .2% led by Germany and France. FTSE added the same. The US dollar index fell .1%, gold is slightly lower after a strong Friday but silver continues to rally. Crude oil had an amazing day Friday but is backing away slightly this am. German 10 yr bund yields rose 5bps as bond holders sold off their holding, US treasury 10 yr yields also jumped higher, 6bps. Japan was sharply higher, up 1.3% while Hong Kong gained .9% and Shanghai up .3%.
A thin earnings calendar this week with names like Lennar, Jabil, LaZboy, Kroger, Accenture, Darden and Carmax.
Late last week the bombings by Israel and then Iran spurred some investors to head towards the sidelines, and for good reason. Volatility is starting to pick up and after such a nice run since early April perhaps traders/investors are looking to take some profits and step back to avoid the eventual corrective period.
Breadth was horrendous Friday with down issues beating gainers by better than a 4-1 margin. It was the worst breadth day in weeks but these occasional wakeup calls are important. Oscillators have now turned down and that could lead to more selling, new highs retreated a bit on Friday and printed a negative number. This remains a neutral indicator.
Volume was very heavy Friday as the indices printed another distribution day. If these start to cluster it will mean the uptrend is in jeopardy. For now, this is a moderate pullback that dip buyers are looking toward for a buying opportunity.
We had a good test of lower levels on Friday am, bounced hard and fell right back into the lows. The IWM did tag the 20 ma, the SPY and QQ nearly touched it. We could see a bit of stabilization here with the Fed meeting coming up (less selling prior) and a holiday Thursday (volatility sellers). We still believe new highs will be achieved soon.
The Internals
What’s it mean?
Clearly a bearish day for the internals. Just awful from the start and even as markets tried to rally the weight of selling was just too heavy to handle. ADSPD nearly showed a trend down day, the VOLD just atrocious with the VIX pushing to highs of the day. TICKS were clearly in the red as big sell programs dominated. We haven’t experienced a day like this in weeks, may we see a rebound.
The Dynamite
Economic Data:
- Monday:Empire State
- Tuesday:Retail sales, import price index, industrial production, biz inventories, Home builder confidence
- Wednesday:FOMC decision at 2pm, press conference, housing starts, jobless claims
- Thursday:n/a
- Friday:Philly Fed, Leading indicators
Earnings this week:
- Monday:RNW, APPS, LEN, PETS
- Tuesday:JBL, VNCE, ANTA, WLY, LZB, VTGN
- Wednesday:ACB, GMS, KFY, SWEN
- Thursday:N/A
- Friday:KR, ACN, DRI, KMX
Fed Watch:
The fourth Fed meeting of the year takes place this week as the market is predicting no change in policy. However, I believe rate cuts will be part of the conversation again, as we have seen the data move favorably in the direction of price stability. Yet, Chair Powell is likely to continue taking a more cautious approach to the very sensitive monetary policy, not wanting to tip his hand about
Stocks to Watch
Semiconductors – This group was on a roll recently until volatility started to pick up. Any deal with China on trade is likely to yield nice gains for this group, we’ll have to wait and see rather than speculate.
Oil/energy – No surprise oil prices shot up Friday following the drop of missiles in Iran and Israel. If that continues we could see a short-term tightening of supply and much higher energy prices.
Gold – The yellow metal continues to say, ‘hey, look at me’. Gold remains well bid and is a great alternative to the dollar especially if inflation and uncertainty continues to escalate.
