The Fuse
Equity futures are pulling back this morning, first time this week we have seen weakness in the pre-market. Given the amount of gains over the last seven sessions it should not be a surprise to see markets retreat a bit, some back n’ fill to find a better entry point for those who have missed out, and let dip buyers remain active.
Interest Rates are rising slightly in what could be a risk off day for the first time in over a week. Rate on the long end of the curve may have bottomed at 4.34% on the 10 year, which was a bounce off the 200-day moving average. The fed futures market is still adjusting future rate cuts, Governor Waller said yesterday it’ll be months before the Fed considers a rate cut.
Commodities are giving back some recent gains, crude oil is down a bit while gold is slightly off, silver down about 1%. Markets are jittery about the prospect of stubbornly high inflation staying present for longer. Some Fed speakers talked of this worry and their preference to keep rates higher for longer.
UK inflation is higher as investors are worried this central bank may not followthrough with a ‘promised’ rate cut. Fed meeting minutes from the early May FOMC session will be released later today. The dollar was little changed, European stocks were down .4%, stocks in Asia were mostly mixed.
Earnings last night from Toll Brothers were strong, Urban Outfitters as well. This morning Target missed on the earnings but beat on the top line and offered in-line guidance. Analog Devices is soaring this morning on strong earnings. Dycom earnings/revenue also rose, the stock up 7% in the early going.
As the markets move slowly upward each day some new traders/investors are dragged in, kicking and screaming. Of course, we would all like to see a dip to buy, but then we don’t tell the markets what to do. If you don’t see the opportunity that is in front of you each day (whether it is buy, hold or sell), then you’re simply going to miss out. Tuesday was filled with terrific action, strikingly in that volatility remains very low.
Breadth was weak again yesterday but that has been the trouble for the past couple of sessions. Remember, breadth was rancid early last week before the big explosion in strong breadth ignited on Wednesday and Friday, so there is still a chance here to turn. This indicator remains on a buy signal though, oscillators did continue lower but are still in positive territory. A sharp move below zero would be dangerous to this current uptrend.
Volume trends remain rather shallow as the stock market awaits a big earnings report tonight from NVIDIA. I suspect the turnover will be brisk later in the week as the pin action from the earnings report will be felt. We don’t often see big volume heading into a holiday week, and that means market volatility is going to be in the forefront. So far that volatility hasn’t played a role, but it will soon enough.
Another solid close for the indices with the Nasdaq pacing the way. We also saw strong upside from the SPX 500 with the IWM trailed. The Industrials are trying to get back above 40K again, and that seems likely within days as momentum remains strong. Only seven more trading days left in May and with a strong move already for the month could more buying be had? It’s very possible, but sets up for a trip up in June.
The Internals
What’s it mean?
For the second straight session the internals really showed you what low volatility means. The VOLD was weak all session, the ADD down most of the day but did manage to rally late. The VIX of course is down for the count, now under the dangerous 12% level, showing heavy complacency. the ADSPD finished around zero, put/calls are starting to rise but the TICKS were awful, red all day long. That means today might be a tough one for the bulls.
The Dynamite
Economic Data:
- Wednesday:Fed meeting minutes, existing home sales
- Thursday:Chicago Fed National activity index, SPX global flash and PMI, New home sales
- Friday:Durable Goods, Michigan consumer sentiment final
Earnings this week:
- Wednesday:ADI, DY, TGT, TJX, NVDA, SNOW, VFC, ELF, SNPS
- Thursday:BJ, RL, SCVL, DECK, DLTR, MDT, INTU, ROST, WDAY
- Friday:BIG, HIBB, BKE
Fed Watch:
With some better data of late one would think the Fed committee members would be willing to ease up a bit on the hawkish rhetoric. One would think…but it’s not happening. We have several fed speakers this week, nine early in the week. Last week Chair Powell pretty much reiterated what was said at the last meeting, but that was before the better than expected CPI.
Stocks to Watch
NVIDIA – The monster semiconductor company will release earnings after the close Wednesday as many are looking for some strong numbers and guidance. They have rarely disappointed the past few quarters, at some point they will not meet those lofty expectations.
VIX – Volatility is down in the dumpster once again, closing under 12%, which is a danger zone. Could it go lower? Of course, and with the holiday coming up that is a strong possibility.
Retail – With last week’s poor April retail report it’ll be interesting to see/hear what many companies say this week. Several names will report like Target, Lowes, TJX and Ross. Will they reiterate the consumer slowing down?
