The Fuse
Equity futures are rising up today following strength in European markets and strength in NVDA following their earnings report.
Yields on rates are down modestly as bonds are higher a bit in front of the holiday ahead. Volatility is down and under 13% for the first time in months.
News of a temporary halt in fighting in between Israel and Hamas may lead to a cooking off period, but it remains a volatile situation. Minutes of the Fed’s last meeting showed members were united about taking a more cautious view on future interest rate moves. Rate cuts as early as March are starting to be priced in. Gold is up modestly and staying above 2K per ounce, crude is down sharply.
Strong earnings and guidance from NVDA last night has that stock up modestly this morning, while Deere put up some good numbers but cut their guidance significantly.
Thanksgiving holiday this week so this is a short week for trading, only 3 1/2 days. A great time to sell some volatility and keep your positions small.
Very poor breadth was indicative of this risk-off day from the start. There was little interest in buying stocks at all, in fact with oil off and gold higher and yields rising it was a good setup to be a seller. Breadth was bad all session long but now has burned off the overbought reading for now. The last time this happened was right before last Tuesday, and we know what happened henceforth.
A holiday-shortened week means volume levels are going to be weak, and that is what we are experiencing. The best thing to do is very little during this week to stay out of trouble, as a lighter volume environment can be dangerous with price action very jumpy.
Are the indices just teasing here? With the SPX 500 just sustaining above short term support, there feels a sense of urgency to get moving. The longer it takes for the markets to make their next move up, the more worrisome it gets.
The Internals
What’s it mean?
Some digestion of recent gains is common and often healthy but the greed still persists. In other words, it seems like everyone wants the markets to go up everyday forever. It doesn’t work that way of course, as we see the last couple of session in the indicators. Bulls are choking right now on the recent gains and while they have not yet done chart damage, under the hood there is some repair needed. The VOLD is down hard while ticks were mostly red all session, the VIX ticked up a bit and the put/calls also teased a bit higher. Let’s call this a yellow flag warning.
The Dynamite
Economic Data:
- Wednesday: Durable goods, oil inventories, Michigan consumer sentiment survey
- Thursday: N/A
- Friday: Global Flash PMI – November
Earnings this week:
- Wednesday: DE
- Thursday:N/A
- Friday:N/A
Fed Watch:
So many Fed speakers out last week I suspect they are tired of talking. In fact, nothing on the docket for speakers this week. We’ll have the minutes from the last Fed meeting out midday Tuesday. Current odds are favoring a rate cut in 2024 as the Fed’s next move.
Stocks to Watch
Volatility – Expect to see the VIX subdued this week as we often see during a shortened trading week. Volatility sellers get in front of the holiday, hence when the market re-opens next week there could be a giveback and higher VIX, which often means markets decline.
Retail – End of the week is Black Friday, otherwise known as the ‘Super Bowl of Retail’. We’ll have our eyes on Amazon, Walmart and other retailers who try to lure shoppers into finding early Christmas bargains.
Oil – Crude oil prices were up sharply last week and may continue this coming week. We see a rise eventually towards $85 a barrel, which could come soon on furious short covering and added buying.