The Fuse
Equity futures are pulling back in a continuation of Friday’s late selling programs. This being the last week of trading in March expect to see some volatility. The VIX is higher by 3% in the early going as players are reaching for protection. April trading starts on Monday in what is considered the last month of the ‘best six months’. It was a strong week for stocks as the bulls pushed three indices to all time highs.
Interest Rates are up slightly after a strong move lower in rates on the long end of the curve Friday. Last week Fed Chair Powell opened the door again to rate cuts this year and downplayed the recently strong inflation upticks in CPI and PPI. The committee sees 2-3 rate cuts in 2024.
Oil prices are modestly higher as geopolitical tensions put a bid under the commodity. Gold is also catching a bid for likely the same reason.
Stocks are showing some seasonal weakness this week, European stocks were mixed overnight, Japan’s Nikkei was down sharply, more than 1.2% while China’s markets were down again.
German 10 year bund yields rose up slightly, the US dollar down modestly.
Earnings calendar is light this week and really only has a handful of high quality names this week. On the docket includes Carnival and Royal Carribbean, Braze, RH, McKormack and a few smaller names.
After some pretty strong price action midweek following a Fed meeting we saw the action slow down a bit on Friday. Some stocks were strong most of the day but the small caps were weaker, interestingly rates were down sharply on the long end of the curve, which means the yield curve expanded. We have seen notably that small cap names do well when rates are dropping. Perhaps this is just a rest period, we have a short week coming up and the end of the month is nigh.
Breadth was poor Friday but that comes as expected following strong breadth numbers midweek. We should not at all be surprised when the market pulls back when breadth is week. We have seen the McClellan oscillator vacillate around the zero line for weeks, and while new highs are still much higher than new lows the momentum seems to get killed just when a breakout is ready to happen.
Volume was on the heavy side for the SPX 500 Friday so that counted as a distribution day. However, other indices were down on lower turnover and that meant they avoided a distribution tag. We should see the turnover heat up later this week with a holiday upon us and the last day of trading in March coming on Thursday.
This will be an big option expiration day (Mar 28).
With a couple of closes above 5200 we see that as good support here, but below that level some better support around 5100 and then 5050 below there. We have not seen heavy distribution in markets for several weeks, the momentum in stocks going higher is just very strong. The Russell 2K continues to drive the action, Friday’s down move could be blamed on the small caps. They reluctantly went higher on Fed day, so this is something to watch.
The Internals
What’s it mean?
Quite a strong bearish response in the indicators this past Friday. The VOLD was not having any of it and neither was the ADD, which finished near the lows of the session. Check out the ticks, heavy red on both sides Friday, put/calls raced higher as well, something to watch for carefully. Meanwhile, VIX moved up all session long and while it is still relatively low, it won’t take much to attract traders to buy more put protection. A couple of down sessions will do it.
The Dynamite
Economic Data:
- Monday:Chicago Fed National Activity Index, New Home Sales
- Tuesday:Durable Goods, Housing Index, Consumer Confidence
- Wednesday:Crude Oil Inventories
- Thursday:Jobless Claims, 3rd Estimate GDP Q4/2023, Michigan Sentiment, Pending Home sales
- Friday:PCE price index for February, income and spending
Earnings this week:
- Monday:
- Tuesday:MKC, GME
- Wednesday:CCL, CTAS, PAYX, JEF, CXM, RH, BRZE, VRNT,
- Thursday: WBA, SMTC
- Friday:
Fed Watch:
The Fed meeting last week came and went, equity buyers were eager to add more stocks if the committee and the Chairman simply lowered the bar. That was the case, though the statement was identical to January’s print. The market is finally coming around to the Fed’s thinking of 2-3 rate cuts in 2024. It’s been a painful push back but frankly a market in alignment with Fed policy is needed.
Stocks to Watch
Volatility – With a short week coming up and end of the month window dressing likely, we’ll watch for the VIX to take another dip lower.
Semiconductors – It was a big week for NVIDIA and their shareholders/conference, but news Monday from China about not using AMD or INTC chips any longer may counter some of the big positives of late.
Boeing – The company announced a big shakeup Monday with replacing the CEO by end of year. This may eventually help the company and stock, which has been performing badly this year.
