The Fuse
Stocks appear to be drifting this morning as equity futures roll to the September month. Equities have had a strong month of June so far, much higher than expected for the first half of the month. As we move into a short trading week let’s remember volatility is still the name of the game, a big options expiration will hit on Friday.
Interest Rates are rising a bit this morning following the disappointing inflation data late last week (Friday). Bonds had been on a roll for the past few weeks and reached an overbought status until the inflationary jobs data but have seen found buyers. The 10 year at 4.25% remains decent short term resistance. Long end rates have been coming down much as they did in the first half of 2024, daring the Fed to start cutting.
Six fed speakers over the next two sessions might give us some clues as to fed policy outlook. China stocks overnight finished slightly lower, Japan fell 1.8%. Gold remains volatility and is down about .8% while crude oil is up modestly. Copper demand is starting to return. The US dollar is up vs the euro as pressure across the pond from France and their election remains.
The earnings calendar is light this week but big names such as Lennar, KB Home, Accenture and Kroger will report.
Goldman Sachs is lifting their price target on the SPX 500 year end to 5,600, a modest 3% move up from current levels, saying even 6,300 is possible. This on the heels of another strategist raising their target to 6K by the start of 2025, a much more robust gain (10% more into year end). This is a short week of trading with markets closed Wednesday in observance of Juneteenth. Summer trading is upon us and with it some biased action, certainly the semiconductors have seen a demonstrable amount of flow.
Breadth was again miserable, thanks to the small caps not participating. That will eventually become a problem, but if we turn to the oscillators they are nearly oversold. Interesting, because the SPX 500 and Nasdaq continue to make new highs, the price action is bullish. This is a stark divergence that will have to be settled soon.
Volume trends are not bullish here as the market continues to rise on tepid turnover. Yet, we did have a strong day of volume Wednesday which triggered some buying, but that interest faded as the week wore on. Look for turnover to climb next week and into Friday’s big expiration day.
Support levels
The Internals
What’s it mean?
Internals were atrocious on Friday and really did not explain the movement in markets. The Nasdaq has had a strong influence on the action of late, regardless of the internals. The poor action will eventually hit the markets, but for now it’s a signal. VOLD was awful for a second straight session, those ticks were very red all session long, put/calls again on the rise. VIX came down, which is the only bullish thing that happened with the internals.
The Dynamite
Economic Data:
- Monday:Empire State Manufacturing Index
- Tuesday:Retail Sales, Industrial Production, Business Inventories
- Wednesday:N/A
- Thursday:Housing starts, jobless claims, Philly fed index
- Friday:PMI flash composite, existing home sales
Earnings this week:
- Monday:LEN, LZB
- Tuesday:CGNT, KBH
- Wednesday:SCS
- Thursday:ACN, KR, DRI, JBL, WGO
- Friday:KMX
Fed Watch:
Last weeks Fed meeting was a bit of a head scratcher. The committee and Chair Powell acknowledged inflation was on the decline but they took up their forecast for higher inflation, and they also removed two estimates for rate cuts. Their forecast has one cut planned, but that could always be changed. One speaker this Monday followed by five on Tuesday, we may learn more about policy moves to come. Next meeting is end of July. It’s been a year since the last rate move.
Stocks to Watch
Options – Friday is a big options expiration day and this is a short trading week. Hence, trading will be condensed into four days and with volatility so low plenty of movement can be had. Look for some bigger price action after the Wednesday holiday./span>
Housing – Quite a bit of data released in the group this week. Rates have been coming down, perhaps that may trigger more activity.
Earnings this week from Lennar and KB Home may provide more clues.
Apple – The big phone and computer company had a stellar week and regained its crown of most valuable company in the world. The buying did not stop for Apple this week, there could be nice followthrough as the stock is mildly overbought.
