The Fuse
Stock futures are taking a dip this morning, following through on yesterday’s losses and spectacular reversal. Even with a VIX ‘only’ at 20% we should expect to see wide moves. Today in particular, as it is a big option expiration day.
Interest Rates are modestly lower today as bond buyers step in to snatch up fixed income. Rates are still moderately elevated as the bond market still sees sticky inflation as a problem. As such, we won’t see a rush to buy bonds anytime soon, and with tariffs likely bringing in another dose of inflation, we should expect to see bond yields in this range for some time.
Stocks are lower this morning, following the lead in Europe as the STOXX index was down by .5%, led by losses in France and Germany. The US dollar climbed higher by .2%, German bund yields fell by 3bps while 10 yr US treasuries held firm. Stocks in Asia were lower, Japan off. 2%, while in Shanghai their index down 1.3% and Hong Kong down 2.2%. Gold is about flat, crude oil down .4%.
Earnings last night were a bust. Sure, good guidance from Micron but that chart was hideous coming into to print, as were Nike and FedEx, the other two tape bombs released Thursday. We should understand the chart tells you as much about how the market will respond as anything. FedEx took down numbers, Nike provided little guidance as they appear to be burning through inventory.
No followthrough, though early in the session it appeared we could have had a nice up session. For the SPX 500 it appears 5,700 is the area of rejection for now. Forget about the 200 day moving average, which was tagged on the SPY but thrown back into the ocean. Today is a big options expiration and volatility remains elevated.
Poor breadth that could spill over into today’s session and flip the indicator to a sell signal. That is how wild this indicator is, oscillators are still positive but heading lower. New lows are still expanding though, as that indicator remains on a sell signal.
Good volume, most of it to the downside on Thursday. That is a sign the buyers are probably exhausted here this round. However, we’ll see a big volume print by the end of today’s trading due to expiration Friday. The hangover effect from that event will spill over into next week. We like to see strong volume on up sessions, so we’ll have to see if the bulls are present today.
It is not easy to followthrough on a day like Wednesday. In fact, on Monday was a huge rally that just did not stick either, but the pause yesterday was not deemed serious. We still have the same resistance levels on the IWM, SPY and QQQ, so once those are eclipsed and confirmed then we can start talking about higher targets.
The Internals
What’s it mean?
I’m going to call this a bearish day for the markets. That’s right, bearish. Rallying from a deep low early in the day was impressive but there was little to push the markets higher other than some short-covering. Notice the weakness in VOLD and ADD, which barely moved but the big pop in put/call, that is notable. Also, a drop in VIX but we had mostly red ticks all session long. This was not a good finish for the bulls and Friday’s have not been all that friendly in 2025.
The Dynamite
Economic Data:
- Friday:N/A
Earnings this week:
- Friday:NIO, CCL
Fed Watch:
The second Fed meeting of 2025 may be a contentious one. Recent readings on inflation (last week) seem to point towards the downward move in prices the committee was hoping for. Yet, we are a long way from feeling comfortable about the trend of inflation. There have been fakeouts along the way, the committee is taking a much more guarded approach to crafting the right policy moves, as they should. Projections come out this week along with a Powell press conference.
Stocks to Watch
VIX = Volatility got a big jolt last week, rising up near 30% before backing off by week’s end. The trend may be down with another drop below 20% but there are still worries about tariffs and the uncertainty about economic growth.
Interest Rates – We have seen rates ticking higher ever so slowly over the past several weeks. This seems to imply a distaste for bonds at the moment, tied into weakness in the dollar, strong gold as well and worries over the US economy. Some of those uncertainties will be understood better this week.
Options – Expiration is this Friday and it is a big one, the triple witching variety. As is custom, rollouts happen about week prior so the effect from expiration is only really felt on volume unless there is a big gamma skew. It’s more or less a media spectacle.
