The Fuse
Equity futures are mixed this morning after a mixed session yesterday. Industrials were up strong Thursday but the rest of the broader market was weak. Today is a big options expiration day and heavy turnover will print end of day.
Interest Rates are lower this morning as bonds are on the rise. As we approach month/quarter end next week we will see several adjustments made to portfolio allocations. Fed funds futures are mostly pricing in the first rate cut for September and a second for December.
Oil prices are up slightly on this Friday while gold is ticking higher. Crude is on track for solid gains this week. In Europe the Stoxx 600 dipped slightly, the german 10 year bund yield declined sby 6 bps. Stocks in Asia were down across the board. Today’s big option expiration is going to create a slew of volatility as gamma hedging unwinds.
Earnings out this morning from Factset and Karmax were moderate beats but poor guidance, both stocks are up in the pre-market.
You just knew a prosperous market could not last forever. The indicators and internals were giving us all warnings signs but many ignored them, because all they cared about was if NVIDIA was going up, then the rest of the market had to follow. Of course that is simply foolish to believe, but momentum takes the form of different rationale when it’s on the move. In other words, any excuse works, but when the music stops you better have seat ready to sit down in.
Porous breadth all session long as the split was rather even by days end. We are clearly in the doldrums of summer trading which mean occasional bear attacks come unannounced. We have seen poor breadth and negative oscillators exist for some time, eventually it will matter to markets.
Turnover was moderate as many traders brace for what will be an interesting show Friday – triple witching options expiration day. We have noticed gamma trading dominates expiration day, we’ll see a big print on the close, in addition next week we have rebalancing in the SPX 500 and Russell 2K, which should help bring more volume.
While not a closing high the SPX 500 did tag a new high just above 5,500 for the first time ever but a nasty reversal candle ensued. We have some good support levels at 5,400 and then down toward the breakout area in the 5200’s. That would be pretty painful from here but the uptrend would still be in tact. Nasdaq was just under 20K on Thursday and finished lower while the Industrials rallied nicely as it bounced off support from Tuesday.
The Internals
What’s it mean?
Internals were mixed on Thursday, the VOLD finished at the highs of the session while VIX also shot up. Ticks were mostly red which probably means more downside to go in the days ahead, especially today. ADD and VOLD are diverging again and not in sync which should concern the bulls.
The Dynamite
Economic Data:
- >
- Friday:PMI flash composite, existing home sales
Earnings this week:
- 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.
