The Fuse
Equity futures are pointing higher as the SPX 500 and other indices try to put a stop to this week’s decline. So far we have seen the indices swoon roughly 4% on the week, a horrendous result that has put the market charts well below key moving averages. With a pretty oversold condition any snapback is likely to be short-lived.
Interest Rates are higher this am after a nice rally in bonds yesterday in a safety trade. As the 10 yr creeps up towards 4.5% this will be a concern to equity investors. The 2 yr is under 4% but is battling its way back up. The drop in yield here has been negligible. Fed futures still seeing up to 3 1/2 rate cuts in 2025, a pretty bold suggestion that is highly unlikely.
Stocks in Europe rose up .1% overnight, just very slight gains. The dollar also climbed the same amount. Crude oil is higher by about 1%, gold is ripping higher after big gains Thursday, trading over 3K for the first time. Silver is also on the climb. German 10 yr bund yields up 3bps while 10 yr US treasuries rose the same. In Asia stocks were higher, the Nikkei up .7%, Hong Kong higher by 2.1% and Shanghai up a robust 1.8%.
Earnings last night from Ulta Beauty beat downtrodden estimates, we also saw a beat from DocuSign and raised guidance. Rubrik also delivered strong earnings and is higher.
Stocks were down for the count from the start of trading Thursday marking another heavy turnover and down session. However, we are now pretty oversold here and are due for some sort of rally, albeit swift and furious. Make no mistake, this pullback is serious business and is a reminder that stocks do go down. It’s time to play defensively.
A miserable day of breadth but this could be the peak of selling. We have just been treated to some of the worst breadth in months, and that is reflecting a very poor reading in the oscillators. They are still in the red, more than -150 on each side. New lows continue to expand as well, there is certainly room for the markets to move down further but the rubberband is getting stretched a bit far.
Volume levels are starting to come down, so even as the markets lose more ground the conviction on the selling is just not there. What does that mean? Basically we are have a down market that is vulnerable to some corrective moves to the upside. If the bulls can pick up the pieces a bit then they can mount a rally to resistance, which may be a good 2-3% higher. Let’s see a strong close first.
More lower lows and lower highs yesterday but maybe – just maybe we have found some sort of level where buyers and sellers can agree for once.
The selling was just lopsided on Thursday after a fairly benign PPI number. But this is bear market action, and now the SPX 500 stands in correction territory. There are some targets below, first one up is 5,400 of the buyers cannot mount a challenge by the bears.
The Internals
What’s it mean?
More downside yesterday as the internals failed to deliver a followthrough day. Though we mentioned Wednesday’s rally was somewhat shallow, the VOLD and ADD really did not move up much. ADSPD nearly a trend down day and the ticks were once again red all day. VIX was higher early on but closed off the highs, put/call is rising again and reflects worry and fear. Just nothing good about this market right now.
The Dynamite
Economic Data:
- Friday:consumer sentiment
Earnings this week:
- Friday:GOGO, HSON, AIRS, LI
Fed Watch:
No fed speak this week but the committee will be watching the inflation readings closely. Recall the recent miss in PCE, the reading the Fed pays very close attention to. Further, it seems job growth is strong enough to handle the current 4.25% fed funds rate for some time, that will discourage many who are looking for cuts in 2025. It just doesn’t seem in the cards this year.
Stocks to Watch
Volatility – The VIX rose up sharply and remains stubbornly high. There is the notion that high volatility readings can continue until a very large selloff happens. That is likely the case, and the longer we go without it the more pain will be delivered.
Mag 7 – This group of mega tech names has been very weak since the start if February. Can they turn it around? The correction in this group has been deep but so far buyers are not sniffing around just yet.
Inflation – More critical data with the release of the CPI and PPI for February. These numbers have been relatively hot and showing much stickier inflation than ever, so we continue to wait for more inflation of prices dropping.
