The Fuse
A strong move in the pre-market for equity futures as traders try to continue the momentum that finished up the month of February. Given the challenges of late with poor sentiment, bearish seasonal trends and a flurry of distribution days the onus is on the bulls to create some excitement and upside, else we may cave under another false breakout. Liquidity has been poor of late.
Interest Rates are rising on this first trading day of March. We should watch yields closely as markets often fade when bonds are losing ground and rates rise up. Fed futures are now trying to price in more rate cuts as it appears the economy is slowing, but it might not be enough for the Fed to come off current fed funds rate of 4.25%. Bond yields are somewhat equivalent, that is a bearish condition.
Stocks are rising overseas with strength coming from Europe. The STOXX was down .3% but France and Germany countered, up .4% and .6% respectively, the FTSE in England was higher by .4%. The dollar fell .1%, gold is bouncing back up better than 1% as is silver, crude oil up a dime. German 10 yr bund yields rsose 2 bps while US 10 yr treasuries also rose the same amount. Japan ripped higher by 1.7%, Hong Kong up slightly while Shanghai lose a small amount.
Earnings are slowing down but there will be some heavy hits later in the week. On our list are Target, Marvell, Costco, Ross, Gap Stores, Okta, Best Buy and Zscaler, a slew of retail names sprinkled with some tech.
Last week was all about earnings and end of month position adjustments, but also many Fed speakers were out talking about the economy and inflation. We found out Friday some key data that really put the screws on GDP for the current quarter, perhaps a negative number for the first time in several quarters.
Jobs will be the main focus though along with retail stocks, which will deliver some earnings. We are not expecting anything too surprising to the upside.
Breadth was markedly better on Friday but this indicator remains on a sell signal. One day does not a trend make, and for the past couple of weeks the breadth has been weak. Oscillators are still in negative territory while new lows are expanding. These are starting to cluster, and that spells trouble for the long term uptrend if it continues.
Volume was brisk, especially towards the end of the day with heavy buying the last hour or so. That may prove to be significant if there is followthrough, hence more buying will create a nice support zone at the lows from Friday. Else, we may have seen another false breakout. For now, the indices are sitting at the bottom of a wide range.
More probing of lower levels on Friday that may have proved successful. The SPX 500 and Nasdaq were down for a good part of the session but buyers stepped in to pick up some bargains just below the 100 day ma. That may prove to be worthy support if there is followthrough today and and tomorrow. One thing to remember is bottoms are not often put in on a Friday, so there is that.
The Internals
What’s it mean?
Quite the surge end of day Friday with huge improvement in the ADD, VOLD and ADSPD. Heavy buy programs at the end of trading, the last 45 minutes were continuous. Ticks reflect the strength too, with VIX also dropping like a stone. As usual, some followthrough is key but maybe a bottom was found.
The Dynamite
Economic Data:
- Monday:PMI final, construction spending, ISM, auto sales, Fed speak
- Tuesday:Fed speak
- Wednesday:ADP, S&P global services final, factory orders, ISM services, Beige book
- Thursday:Jobless claims, Q4 productivity, trade deficit, inventories, fed speak
- Friday:January labor report, wagers, consumer credit, lots of fed speak
Earnings this week:
- Monday:OKTA, GTLB, ADMA, HUT
- Tuesday:TGT, BBY, SE, ONON, CRWD, CRDO, STEM, JWN, BOX, ROST, CHPT
- Wednesday:ANF, FL, THO, SSYS, RSKD, EDIT, BR.B, MRVL, RGTI, ZS, MDB, VEEV, VSCO, TREE
- Thursday:JD, CBRL, KR, BJ, DCTH, HIPO, M, AVGO, BBAI, COST, GAP, HPC,IOT, COO, VEL, SERV
- Friday:GCO, AGN, INTT, BDX, ONLY
Fed Watch:
Last week’s data was shockingly poor, but at some point the economy is going to need to cool down. Most fed speakers last week talked about the cautionary tale of high inflation on the economy, they are in no rush to pour gasoline on the fire. We’ll hear more this week of the same, the next fed meeting is likely to be met with no change in policy, but further meetings dictate this, too.
Stocks to Watch
Retail – A heavy week of earnings from retail names, not the biggest ones like last week but more concentrated in niche areas. We saw a bit of weakness in the consumer reports last week and the prior week (spending, retail sales) so it would not surprise us to see a few misses, but it’s all about the guidance.
Costco and Target will lead the way.
VIX – Market volatility has been rising up lately due to some increased uncertainties. When there is worry about the future that is when volatility rises, ranges expand and option premiums rise. If we experience a steady down move in volatility we will know the trend up has continued.
Mag 7- The last of this group delivered earnings last week (NVIDIA) and no surprise the ‘7’ are relatively poor performers. But, with a new month starting perhaps money flows will start to return to this group.
