The Fuse
What are futures doing?
US futures are modestly lower this morning following a positive Monday session. Not much to drive markets today but perhaps a slight retreat will give the dip buyers a chance to add. Overnight lows were down further but buyers stepped in to cover the losses.
News
Very modest moves for the markets overseas, the STOXX index down .1% but did not reflect the strong gains in France and Germany. FTSE added .2%, USE dollar index fell .1%, gold is rally up more than 1%, silver higher by about 2%, crude oil is backing away about .9%. Yields are falling, good for small caps – German bund yields off 4bps, treasuries declined 1bp, in Japan the Nikkei down .3%, Hong Kong with a robust move up 2.1% with Shanghai higher by .4%.
Volatility
VIX remains muted, sitting around 16% which is generally bullish for stocks. Until the VIX starts to trend upward then this indicator is going to point to positives for the stock market.
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Interest Rates
A retreat in yields is good for the bond market investors/traders, we are seeing a drop across the board this morning especially on the long end of the curve. We may see a rise in small cap stocks later on this positive move for bonds, 2/10 spread remains steady and high yield bonds are in demand. Fed funds futures. are steady, several important fed officials speaking this week.
Earnings
Credo with some strong earnings and guidance last night, but the big winner was HPE, which ripped higher on stellar guidance and a strong beat. This morning we’ll hear from Dollar General, Victoria’s Secret and Signet, tonight Ulta, Palo Alto, Gitlab and Sportsman’s.
Events
Good day for the bulls with new highs printed again, solid price action but again under the surface there is trouble. We identified. before the open what could have been a risk off day (volatility up, dollar up, vix higher, yields up, oil up) but that did not come to fruition. The bullish trend is strong and broad here, so any selloff, even small seems to be bought up with earnest.
Breadth
Again breadth came in weaker than hoped for, negative on the NYSE data and that has this indicator ready to flip bearish. Though the SPX 500 chart and others are bullish, the breadth acts like an anchor underwater, and no matter how hard the price action tries to float above the surface the anchor will weigh on it. Oscillators about flat on the NYSE, green on the Nasdaq. New highs still beating new lows.
Volume
Turnover was weak on this Monday, that is not much of a concern though with more reasons to buy later in the week. Of course, the markets are overbought and that gives many some doubt about moving higher. Nobody wants to be the last one in of course, and perhaps a pullback here on moderate volume this week sends the message to the dip buyers.
Support Levels
While the markets were higher they were masked by some weakness. Take the small caps, which took a hit as the reality of a ‘risk off’ day effected these stocks. A little pullback is not a terrible thing, it just feels horrible. But resetting and testing lower levels is a very healthy process and sets up the next move, which is likely higher.
The Internals
Nothing too impressive about the internals Monday, with solid VOLD but weak ADD/ADSPD. Ticks were evenly distributed on the day, put/calls are on a buy signal and continue to drive lower. VIX rose up modestly but remains in a firm downtrend. Good not great, we’ll see if the buyers come back in earnest by mid week or of the bears can use the internal weakness to pounce.
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The Dynamite
Economic Data:
- Tuesday: JOLTS, Cleveland Fed President Hammack
- Wednesday: ADP, PMI, factory orders, ISM, fed beige book, fedspeak
- Thursday: Jobless claims, productivity, Barkin speaks
- Friday: Labor report for May, wages, consumer credit
Earnings this week:
- Tuesday: DG, VSXY, DCI, SIG, ODD, PANW, GTLB, ULTA, SPWH, PICS, PETA
- Wednesday: MMED, MDT, CGNT, M, OLLI, THO, AVGO, CRWD, VEEV, AI, FIVE, DSGX, PVH, WOOF
- Thursday: CIEN, CAL, CMCO, BF.B, TTC, RBRK, PL, LULU, DOCU, IOT, GWRE, TTAN, QX
- Friday: ABM, GIII
Fed Watch:
It was a loud week for fedspeak as several speakers came out with opinions of the current economic environment. There is no way the committee can be happy with the current inflation situation and outlook, but we have yet to hear from Chair Warsh and his views.
Stocks to Watch
Big Cap Tech – A renaissance of sorts, the big names like IBM, Oracle and Microsoft along with Dell had a phenomenal month, not to mention Intel as well. Can the surge continue? It’s possible but look for some sort of retreat soon.
Energy – Oil prices finally dropped sharply this week after it appeared the Iran War may be winding down. A few more details to get the Strait of Hormuz open and then crude may decline more.
Interest Rates – Long rates are slowly moving downward and that would be a positive for stocks, especially small caps. Can yields fall enough if inflation numbers are rising?
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