The Fuse
Equity futures are getting drilled this morning in a continuation move downward from Monday. The action to start the week has been downright bearish and is now ready to test some good support.
Interest Rates are lower again as the equity market is on the defensive. Trader and investors are looking for some safety and finding it in treasuries, yields are taking a modest dip. 2/10 spread remains steady as they both move lower, fed funds futures now only pricing in a 46% chance of a cut next month. High yield has been pulling back however as spreads continue to widen, reflecting uncertainty about the economy.
Stocks across the pond were weak overnight, the STOXX fell 1.3% on heavy volume following the US market drop. France and Germany hit the worst, the FTSE also lost 1%. In Asia stocks were down hard too, Japan off 3.2% while Hong Kong lost 1.7% and Shanghai .8%>. Gold is down and headed for a test of 4k, silver testing 50. Crude oil now at $60, the dollar index fell .1%. Yields on the US 10 yr and German bunds were down 2 and 1 bp respectively, reflecting the safety trade.
Earnings this morning from Home Depot were good but the stock is selling off on mediocre guidance. Baidu had a strong beat on the top and bottom line as their cloud business is rocketing higher. Tonight we hear from Carlyle and Powell Industries, tomorrow Target, Wix, TJX, LOWES, PDD and NVIDIA along with Palo Alto, Jack and others.
Stocks have been on a rollercoaster ride again the last couple of weeks. Perhaps this is just a wide rangebound trade or something more. What we know is the longer the stock market just messes around the current area the harder it will be to lift higher. Nothing wrong with some sideways action but at some point the bulls need to step up and start buying, as the seasonal bullish trends won’t last forever.
Breadth continues on a sell signal, it was miserable yesterday as the indices were clocked. Oscillators are now at good oversold reading but they can move down further, just to the most extreme point to make the bulls say uncle. New highs are being swallowed up now by new lows, that indicator on a sell signal now. No relief from this indicator as it has been troublesome for months.
Heavy volume print yesterday signifying another distribution day, we have had a cluster of these showing up lately so that is starting to turn the overall trend bearish. Just a correction? That is how a bear market starts but nobody will admit it, especially since so many people prefer the upside and are often in denial that is could be over for awhile. Volume prints that are big tell us big money is exiting, so why should you stay in longer?
Breaking and closing under the 50 ma here is not bullish of course, but we have some layers of support that might hold eventually. Remember, when vix starts going wild you can throw out any support as it becomes like a hot knife through butter. We see the 6550-6500 area as good strong support and if we get there this week the market will be severely oversold at that point.
The Internals
What’s it mean?
You couldn’t pay anyone to be a bull yesterday, let alone give stocks away for free. Nothing appealing about buying anything yesterday, with the internals showing all bearish indications. VOLD is down hard as is the ADD, the ADSPD nearly printing a trend down day. ticks strongly red indicating heavy sell programs all day, the VIX spiking to close above 20% while looking at the put/call you see that indicator jumped, put buying happening big time. That may continue a few more days.
The Dynamite
Economic Data:
- Tuesday:(import prices, industrial production, cap utilization, builder confidence, Michael Barr speaks
- Wednesday:Philly Fed, housing starts, trade deficit, fed meeting minutes released
- Thursday:September labor report, existing home sales, leading indicators, fed speak
- Friday:More Fedspeak, SPX pmi, consumer sentiment
Earnings this week:
- Tuesday:HD, BIDU, AS, FUTU, PDD, KKLAR, CAN, KULR, DLB, CCG, POWL, SQM, LZB
- Wednesday:TGT, WIX, TJX, BLSH, LOW, GDS, ICCM, KC, VIK, WSM, NVDA, PANW, CPA, JACK, BV, CRNC, HI
- Thursday:WMT, ZIM, SCVL, ALLT, WMG, VIPS, BULL, VEEV, CPRT, GAP, ESTC, UGI, INTU, TEN, POST, ROST
- Friday:BJS, VFS, MNSO, FRO, AZIA
Fed Watch:
Lots of concern that inflation is starting to run hot. That has spooked several fed members as they offer a ‘wait and see’ approach at the final meeting of the year next month. Can the committee resist the market’s desire to cut one more time? If we look at the 2 yr the market there is saying ‘slow your roll’ while fed funds still expect a cut, it’s only 50/50 now. We may see a change in the odds later in the week as more data is released.
Stocks to Watch
NVIDIA — We have to pay attention to the ‘King’ this week, reporting earnings after the close Wednesday. Lots of interest in this name but they can also pull up other semiconductor and AI-related names, too.
Bonds — It’s possible we get several data releases this week and that might move fixed income. The equity markets are mostly oversold here so any lack of bad news is going to stimulate buyers.
VIX — I’m watching the VIX closely this week along with nasdaq volatility, the VXN. We have seen a rise here as many are getting uncomfortable. Perhaps an opportunity is going to open up of the dip buyers step in. Else, just expect more selling to drop the market further.
