The Fuse
It’s been a wild and crazy session overnight as equity futures have been all over the place. Following word of a bombing in Iran by the US, stocks opened sharply lower and rallied to a strong positive by early morning but have lost their edge a bit. Following a big options expiration day expect to see more whipsaw action.
Interest Rates are slightly on the decline here with safety trade features happening this morning. High yield remains strong while fed futures also steady, looking for two cuts in 2025.
Stocks across the pond were down modestly, the STOXX off by .3% led by decreases in France and Germany. FTSE lost .1%, the dollar climbed .3% while crude is catching a nice bid (but well off the highs). Gold and silver are slightly higher. German 10 yr bund yields and US 10 yr treasury yields both climbed 3bps, Japan was barely down but China’s markets were nicely higher.
Modest slate of earnings this week with big names like Nike, FedEx, General Mills and Carnival Cruise. There might be a slight impact from these names but probably nothing too serious to worry about.
Following a big options expiration we may have some left over volatility to start the week. Further, if there is any movement on the war front and trade policy that may influence traders to push our lay back. There is a good chance the markets peel back some before the start of the new quarter next week as some areas have become overbought, further the speculators are out in droves (which means rallies tend to die on that vine).
Breadth retreated from the highs of the and were hammered all day long. In fact, the breadth ended slightly negative but was much more positive from the start, that would be considered a bad day for the bulls. Oscillators remain negative so that indicator is bearish, we could see a good flush lower before a recovery is in place. New highs are not expanding much anymore.
Volume was pretty high as we suspected for an options expiration. Over 6.5 billion in options expired Friday, a record amount and several were exercised (and will be sold or bought come Monday am). We typically have a hangover effect after expiration and considering we are now in the hot summer months expect to see volume die down, but much volatility nonetheless.
Friday was the day we felt the ‘Earth Move’, or maybe it was just a test of the 20 day moving average. That’s it! The SPX 500 and Nasdaq both made a run at this support level, we’ll see if that matters this week or not. The chart is showing these indices are starting to roll over but not with any bit of energy. Could that get started up? Certainly, and with no catalyst to move up and the 50 day moving averages over 5% lower, the bulls could be caught by surprise.
The Internals
What’s it mean?
Not much to get excited over, in fact if you’re bearish you might think there is a chance for some downside. The VOLD and ADD once again disappointing with the VIX climbing to its highs of the day. With the fear index above 20% there is trouble brewing. Ticks were spread out but that is not what the bulls like to see. Again, it appears trouble is ahead.
The Dynamite
Economic Data:
- Monday:
- Tuesday:
- Wednesday:
- Thursday:Trade, retail and wholesale inventories, jobless claims, GDP 2nd revision, durable goods, pending home sales, Fedspeak
- Friday:Consumer sentiment, income/spending, PCE
Earnings this week:
- Monday:CMC, FDS, KBH
- Tuesday:CCL, SNX, FDX, BB, WOR, AVAV, ATEX
- Wednesday:GIS, PAYX, DAKT, WGO, NG, MU, JEF, WS, FUL SCS
- Thursday:AYI, WBA, LNN, MKC, HIVE, NKE, CNXC, AOUT
- Friday:APOG
Fed Watch:
The Fed came and went last week and kept monetary policy in place. They continue to believe growth is still delivering and the labor market remains strong, but there are risks in lowering rates if tariffs produce some inflation. Their concerns are warranted, but the data has improved. Chair Powell testifies in front of Congress this week.
Stocks to Watch
Energy – A big spurt in oil prices this week as the conflict in the Middle East continues to fester. As the worries mount we will continue to see a premium in crude which eventually trickles down to the consumer level. That’s right, higher inflation.
Russell 2K – The small cap index recently made a gallant run to the 200 day moving average and backed away, now it is correcting off a big move up. We’ll be watching this index closely as the expansion of small caps means strong breadth figures are likely, which the bulls would like to see.
Volatility – With the uncertainties abound it makes sense investors/traders would buy some protection. But we are right up against the end of the month/quarter and that may be where buyers pick up stocks and ignore the geopolitical issues. A volatility drop would confirm that.
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