The Fuse
Equity futures are rising up sharply this am in a continuation move from the prior sessions this week. Traders are trying to make it five in a row for the SPX 500, but much of that optimism will weigh on how the market accepts the inflation report coming out today.
Interest Rates are steady this morning after falling sharply on the long end over the past few days. That drop increased the inversion between 2’s and 10’s a bit. We could attribute the drop in rates to a ferocious short covering rally in bonds, hence yields down. That may continue a bit longer.
Hot PPI yesterday did not deter the buyers from picking up stocks yesterday. There was strong momentum most of the day while oil prices eased a bit following Monday’s strong surge.
Strong earnings from Delta this morning but they are cautious on guidance. Dominos had soft revenue but an earnings beat while Fastenal beat and raised guidance.
Stocks were all over the map today, likely due to elevated volatility in front of this morning’s PPI report. The September PPI came in pretty hot across the board, but with a strong bid in the market beforehand there was no stopping the bulls from running. Following the big reversal last Friday there seems to be plenty of stock to buy this week.
Positive breadth is positive breadth, that makes a difference to the cumulative affect. only a 17-11 positive skew but the bulls will take it. The indicator is now on a strong buy signal but is not quite overbought. Oscillators are approaching that level where a caution flag is due to be raised.
Volume was rather quiet on Wednesday as the action was more focused on the last hour of trading. Buyers stepped up and picked the market up from the lows with some strong turnover. That action has been the case for the past few sessions, we’ll see if it continues.
We still see 4400 on the SPX as resistance and 16K on the Nasdaq, too. With this recent rally the support around 4,200-4,230 on the SPX 500 may hold firm, but if tested again there could be even more downside.
The Internals
What’s it mean?
Internals were positive but not the entire day. They started strong but drifted lower, a late day rally pushed the internals positively and we finished near the highs of the session. VOLD and ADD were solid, the VIX took a leg lower and appears headed downward, even if the CPI comes out hot today. Ticks were pretty strong and green most of the session, bodes well for the end of the week.
The Dynamite
Economic Data:
- Thursday: CPI, Jobless Claims, WASDE report
- Friday: Import/Export Prices, Michigan Sentiment Index
Earnings this week:
- Thursday: DAL, DPZ, FAST, WBA, INFY, SGH
- Friday: JPM, UNH, PGR, WFC, BLK, PNC, C
Fed Watch:
There were a slew of Fed speakers last week talking up monetary policy, but really nothing changed. Loretta Mester from Cleveland led the charge of higher for longer, and the committee seems head-strong to get inflation down to its 2% target, likely by the end of 2025. If that’s the case, rates will be coming down but for now we’ll have to live with higher rates, the punishment for high inflation. That said, the jobs report Friday was very strong on the headline and wages moved slightly lower.
Issues/Stocks to Watch this Week
Financials – Banks are in the spotlight this week, at least a few of them as we see how recent slowing in the economy and higher interest rates affect investment, loans and income. Friday is the day.
Inflation – Two big readings on inflation this week are the CPI and PPI, but other data will be scrutinized as well. The August headline saw an annualized rate of 7.2%, which is clearly in the wrong direction. Stocks took it in stride.
Internals – The indicators have been weak for about two months as the stock market glides through a corrective phase. But improvement on a Friday is not common, so with an oversold condition at hand we could see a more substantial rally develop towards resistance.
