The Fuse
Equity futures are marching higher this morning as the bulls continue to ‘sweep the leg’ of the bears. The recent action has been very constructive for the uptrend to continue but the bulls would like to see small caps recover here. Nike earnings out tonight and PCE on Friday morning will shake things up a bit.
Interest Rates are falling slightly this morning as a bid remains in treasuries. The long end of the curve has most investors interested as they start to see inflation fading away. High yield remains very strong with tight spreads, the fed futures are seeing perhaps 2 1/2 rate cuts this year, slightly ahead of the Fed.
Stocks are rallying again overnight with the European STOXX higher by .4%, led by strong moves in Germany and France. The FTSE added a smaller gain, the dollar fell sharply, down .4% while gold is bid along with silver. Crude oil is fractionally higher. German 10 yr bund yields fell by 3 bps, US 10 yr treasury yields are down 2bps, and in Asia stocks were mixed with Japan pushing higher by 1.6%, Hang Send and Shanghai were down .6% and .2% respectively.
Earnings last night from Micron were outstanding and with robust guidance, too. That may light a fire under the semicondcutor names today. Later tonight Nike will report earnings, not looking for much here.
Stocks tried their best to make it four in a row but fell a bit short. Actually, the SPX 500 was about unchanged but the SPY was higher as was the Nasdaq, but small caps fell sharply, the IWM down more than 1%. Something to worry about? Well, not just yet but we need to pay attention of there is more distribution then it could be a sign of things to come. Markets have come very far in a few months and might be in need of a rest.
Poor breadth yesterday but this indicator remains on a buy signal. Oscillators went negative, something the bulls did not want to see, but if they can bounce back today, if the dip buyers step in then we can reverse to the upside and pursue those all-time highs, which are 1% or less away.
The volume did not expand yesterday, that’s not a tragedy however. Given the huge move over the last few sessions I would say the bulls are due for a rest. With just a handful of points to get to new highs it seems the energy is being built up for a big move, and if that happens we could see an explosive volume session (or two). That might trigger some hefty buying, especially if the resistance levels are exceeded.
It seems to me the markets are not getting all that excited yet about a new all time high, and that is probably a good thing. Every attempt has been rejected soundly (approaching those levels), and eventually it will happen but not with everyone man, woman and child on board! That’s the way big money players like it! Support for the SPX 500 down at 6K and the Nasdaq at 21.7K
The Internals
What’s it mean?
We can pretty much see how poor the market performed on a relative basis just buy looking at these internals. The VOLD was atrocious as was the ADD, the ADSPD nearly a trend down day. But the markets did not finish too badly, save for the small caps which dominated the bearish action. VIX did fall as well and is close to those March lows, but TICKS were heavily red, meaning big sell programs hit today. Three more session for the end of the quarter.
The Dynamite
Economic Data:
- 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:
- 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.
