The Fuse
Equity futures are sharply higher this morning attempting to regain much of the lost ground from Friday’s rip lower. Stocks are well bid but off their overnight lows, volatility is getting smashed this morning and that may lead to more upside.
Interest Rates in the US are not moving today as the bond market is closed for Indigenous People’s Day. High yield though is coming back after falling sharply last week, fed futures still see a good chance of two more rate cuts in 2025. The 2 year yield popped last week and is backing away a bit.
Stocks are stronger across the board as gains in Europe help drive the action. STOXX was up .5%, FTSE added .2%, France and Germany were flying higher. The dollar index gained .1%, gold is up sharply again near 4,100 per ounce while silver is nearly touch all-time highs at $50. Crude oil is making a run again at $60. Stocks in Asia were lower in China, markets closed in Japan. German 10 yr bund yields up 1bp.
Earnings will start in a big way this week with banks/financials hitting on Tuesday/Wednesday, with some tech names like ASML, TSM and other industrial names. If earnings are strong as many are pointing towards then that may be enough to overcome the recent tariff fears.
As of Friday nothing more important than watching the trade scenario unfold. After Friday’s punch to the gut by President Trump will China retaliate or simply back away? It’s nearly impossible to handicap but if Friday was any clue then we need to be much more cautious are careful about how we step, until there is some resolution. China and the US seem to have an agreement in principle but everything is on the table.
Breadth was horrible on Friday as one would expect with the heavy selling pressure. No question this indicator is now on a sell signal, but the oscillators are now reflecting some oversold conditions. Further, the extreme readings put this indicator back to where it was months ago. New highs still ahead of new lows but the lead has shrunk. A couple more days of poor breadth will wash out many investors.
Volume trends have turned negative, the reading on Friday was a warning shot. Heavy volume to the downside means another distribution day, and that is a negative situation. We do not have clusters yet of distribution but if we do and get some followthrough to the downside today then we are looking at much lower levels before buyers start coming in.
We talked several times about testing some lower levels like the 50 ma, and that was nearly tagged on Friday. These one day moves with erratic price action and heavy volume weigh on traders, there is nothing more rattling than inconsistent price action. Regardless, the 50 ma seems to be in play here for the SPX 500 and Nasdaq along with the small caps, the industrials landed right on it Friday at the close. Now we watch for the next move.
The Internals
What’s it mean?
Very heavy and poor action by the internals Friday, but that was something we pointed towards early in the week. Even before the announced tariffs on China. the VOLD and ADD were weak, markets were up. That left the trend of the day vulnerable to downside, and it blew out like a candle in the wind. ADSPD nearly a trend down day, VIX rallied sharply, up to 22% while ticks were mostly red, plenty of sell programs. Put/calls raced higher, bearish internals all around.
The Dynamite
Economic Data:
- Monday:Fedspeak
- Tuesday:More fedspeak, NFIB index
- Wednesday:Empire State, more fedspeak
- Thursday:Retail sales, PPI, philly fed, jobless claims, homebuilder index, lots of fedspeak
- Friday:Housing starts, building permits, industrial production, cap utilization, import prices
Earnings this week:
- Monday:FAST
- Tuesday:JPM, BLK, GS, C, WFC, JNJ, DPZ, ERIC, ACI, BCE, HWC
- Wednesday:ASML, PGR, DLTR, BAC, MS, SYF, CFG, ABT, PLD, UAL, JBHT, SNV, PNFP, BANR, EPAC
- Thursday:TSM, BNY, KEY, INFY, SCHW, TRV, CMC, MTB, MMC, IBKR, CSX, SFNC, FNB, OZK, LBRT
- Friday:ALLY, SLB, STT, AXP, RF, TFC, HBAN, CMA, ALV
Fed Watch:
Lots of fed speakers this week coming out to talk about the economy. This will like be the last big week of fed speakers before the Oct 29th fed meeting, which seems to be one where the committee will cut rates one more time. No doubt some will be talking tariffs again along with the government shutdown, which is likely to be a drag on growth.
Stocks to Watch
Banks – This group has been weaker of late but that is perfect timing in front of earnings. Whenever the financials rally before earnings it usually means downside, we have the opposite situation here.
Tariffs and China – A mid afternoon swoon after President Trump said 100% tariffs on China starting November 1. If this is just rhetoric, a threat or something real we will soon find out after China responds. More uncertainty.
VIX – A huge move in volatility on Friday, perhaps a bit too much but we’ll see how the market responds on Monday. There is nothing wrong with a little fear but if it continues then it could be problematic.
