The Fuse
Equity futures are soft this morning, continuing yesterdays minor selloff. Stocks are still a bit overbought on a few metrics so a ‘sideways dance’ might actually work in the bulls’ favor. Given huge rally and close this week above 6K on the SPX 500 for the first time, it makes sense to have some selling befor the next leg up.
With the CPI on tap and PPI Thursday can the bond vigilantes give it up for a couple days? Overnight yields are sliding a little as bond buyers step in, but it’s been an avalanche of bond selling for a few days now, even since the September rate cut was announced. The 10 yr yield is right up against the Fed funds rate, it won’t take much to lift it higher. How will the markets respond? Initially with confusion, but in the end this is a positive development for the yield curve.
Stocks in Europe were down modestly while the dollar rallied one more time, gold is up about .4% while crude gains about the same. German 10 yr bund yields rose 2bps while the 10 yr yield fell 1bp, in Asia stocks were mixed as Japan followed the US and fell about l7%, Hong Kong barely down while Shanghai rallied .5%.
Earnings last night from Spotify were outstanding and with strong guidance, that stock is higher by 10%. Cava also delivered another strong quarter. This morning very strong earnings from CyberArk, tonight we’ll hear from Cisco, Beazer, HP and a few others. Tomorrow am is Disney , JD, Advanced AutoParts.
Stocks reached a pretty severe overbought condition after rallying for five days in a row. The indices all fell back but finished well off their lows. We could expect some backing and filling after such a large move, more than 5% over the week. What is important for this trend to continue is seeing lower volume on the down moves and support hold up at certain levels. We are yet to test the bigger moves.
Breadth was rancid tonight, just awful as the IWM was knee-capped by higher yields. As we know, small caps tend to drive the performance of breadth, but the yield on bonds drive the IWM performance. It is a chain reaction, usually short term but it tends to dictate price action if there are several days of poor breadth. Oscillators have come off their recently high levels and are near the zero line. New highs are still crushing new lows.
The indices notched a distribution day, which means more selling volume than yesterday as prices were falling. This is a sign of big institutions selling stock in a big way. That of course is not the usual case in a bull market trend, but they do pop up occasionally and even cluster, and several of these days scattered together would be a problem. So far that is not the case.
The first pullback in six sessions as the stock market likes to teach traders/investors that YES, STOCKS DO GO DOWN!. All kidding aside, the overbought condition was not likely to continue for much longer, and that means some testing of levels. There are more important levels to test further down, though a nearly 1% drop today in the indices at one point did get the juices flowing. Dip buyers were active again.
The Internals
What’s it mean?
Simply ugly internals, and that is saying a lot. The VOLD fell hard and that could spell trouble if the market cannot pull it together today. ADD was down for the count from the start of trading, the VIX did end up lower on the day but garnered some buying interest midday. Ticks were ugly, red all session long while the put/call did fail to rise, that is bullish. We’ll see if today is a turnaround session or something more is brewing.
The Dynamite
Economic Data:
- Wednesday:CPI, Four fed speakers
- Thursday:Jobless claims, PPI, Fed speakers (including Chair Powell)
- Friday:Import prices, Empire State Manufacturing, Retails sales, industrial production, cap utilization, NYF President John Williams
Earnings this week:
- Wednesday:CYBR, BZH, CSCO
- Thursday:DIS, AMAT. POST, JD, AAP
- Friday:BABA, BKE, FL
Fed Watch:
The committee delivered a big rate cut last week, and now the market is focused on December. The futures market sees a strong possibility of this happening, but the data is going to need to come in as hoped for. This is a huge week for Fed speakers, and Chair Powell will be heard as well along with some other important names. Interesting they are all coming up with some important inflation data.
Stocks to Watch
Nasdaq – New highs for this index as it is now taking taking the lead. Remember in 2023 this index was up 53%. That is not likely achievable again but having the power to bring the other markets up is a huge advantage.
Tesla – After the election results, Elon Musk’s company really stepped on the gas and moved higher. The all-time highs are about 30% away but this stock has incredible momentum and could certainly make a run there before year end.
Inflation – With CPI and PPI readings due out this week, the expectations are for the core to continue dropping. The Fed has made great progress in bringing down prices but more work is needed. Policy is still restrictive, but with better inflation numbers the committee will bring rates down faster.
