The Fuse
Equity futures are down and are looking to fall for a second straight day. Stocks are under pressure after reaching a strong overbought reading last week and were due for some profit-taking.
Interest Rates are moving slightly higher again as the 10 yr makes a run back above 4.3%. That seems to be safe but if it starts heading towards 4.5% that will be trouble for the both the bond and equity markets. Fed futures predicting the first cut is coming in July (78% chance) with two more after that by year end.
The committee in March seemed committed to two if the data were favorable. This morning earnings from Marriott, Celsius, Ferrari, and Datadog while tonight AMD, SuperMicro, Rivian, Upstart, Wynn and Arista.
The winning streak is over. It was a strong one with the indices gaining more than 10% during that stretch as breadth became overheated. Is this the start of a new uptrend? Many are asking that question but it appears the answer is NO if there is some followthrough to the downside, and that may happen today. Given the uncertainties still out there it makes sense to have protection, it is cheap here with VIX at 24-25%.
Earnings from Palantir last night were terrific but the stock is down, even as the company raised full year guidance. The problem is Palantir ran up sharply in front of the print. We’ll see if it can recover on the stronger guidance. HIMS beat but warned about tariff issues, Ford cut their guidance for the year on the same premise.
There is a Fed meeting this week and while many folks believe there will not be a cut this time around, some still think the FOMC needs to be aggressive in cutting the overnight lending rate. The top of the list for this request would be President Trump, who seems to believe low rates are the elixir for the economy.
I’m afraid that is not true nor how it works. It is very likely the committee will not only stand pat this week but in June forecast even FEWER hikes (currently 2) for 2025.
Poor breadth yesterday but this indicator is still clinging to a buy signal. It would take a couple of negative sessions to turn that around to a sell, so we’ll have to wait and see. Oscillators came down of course from their heights and are still modestly overbought. Indices tried to make a turn and rallied somewhat but the weight of sellers was too great and markets headed lower. New highs still beating new lows.
The only good sign is that volume was weak on a down session, but that could lead to more and more selling. We may see more turnover later in the week following the Fed decision though, and that would be starting tomorrow if market players need to move capital around. We are in a seasonally weak period for stocks (sell in May) and that might steer funds away from the stock market.
We’re going to hold to our thesis that 5,100 is good support, but would like to see that tested again on the SPX 500 at some point – soon. Why is that? Well, with such an overbought condition like we have now the fear is gone. Markets rise up on fear (doesn’t make sense, right?), think of climbing that wall of worry.
Nasdaq is now building support at 20K.
The Internals
What’s it mean?
Weak internals all day long as the bulls suffered the consequences following a string of up sessions. Look at those ticks, all red all day long. That means sell programs hit the tape frequently. VIX started lower but protection buyers came in and took the fear index up to 23, still lower than recent days. VOLD and ADD finished poorly. If we have another day like this on tap that could wipe out the uptrend in a hurry.
The Dynamite
Economic Data:
- Tuesday:trade deficit
- Wednesday:FOMC meeting, Chair Powell press conference, consumer credit
- Thursday:Jobless claims, productivity, inventories
- Friday:Lots of Fedspeak
Earnings this week:
- Tuesday:CELH, DDOG, RACE, DOCN, MAR, CEG, ARRY, ADMN, RIVN, TEM, ET, ANET, UPST, WYNN, LCID
- Wednesday:UBER, DIS, TEVA, NOVO, VST, GOLD, FLEX, OSCR, BG, CVNA, APP, ARM, CLF, DASH, BROS, OXY, BBB
- Thursday:PTON, SHOP, COP, HUT, CROX, LNG, TTD, COIN, MARA, MELI, NET, SOUN, DKNG, AFRM, WOLF
- Friday:WULF, ENG, ANI, TLS, PAR, AGN, ESNT, GOGO
Fed Watch:
We have the third Federal Reserve meeting of the year and the futures market is not expecting rates to budge at all. The data still tells the committee the economy is running strong and there is a hint of price instability with coming tariffs. If that goes away the narrative may shift to a more accommodative Fed, but maybe later in the year. Lots of Fed speak on Friday and the Powell press conference on Wednesday.
Stocks to Watch
VIX — With some news behind us and some potential resolution to trade issues the VIX has come down sharply, nearly 22% and is looking to break 20 this week. If so, that lines up more upside.
SPX 500 – With a strong start to May the index finds itself on a nice day winning streak, something that is quite rare. The indices are overbought and due for a corrective phase, when it happens is anyone’s guess but you should be ready for it.
China Trade – Will there be a deal between the US and China? The stalemate continues but word has it both sides want to make an agreement before economic disaster happens. We may know more in the weeks ahead but the news cycle is accelerating quickly.
