The Fuse
Equity futures are bouncing back a bit after getting hit hard during the second half of Tuesday’s trade. Semiconductor stocks were the culprit but we did see a bit of strength in small caps, though the Russell 2K did finish off its highs of the session. Today is a critical day for the bulls, if breadth is strong we can see the oscillator move above zero and perhaps get the bulls back on track.
Interest Rates are drifting lower, bond buyers are back to help push yields down. The 2 year is trying to stay under 4%, it is working. Fed futures are locked into two more cuts in 2024 (Nov and Dec). At this point the Fed is still on the fence about two but are probably coming around to it.
Stocks were drilled yesterday, not much of a bid in the afternoon and that loss extended overseas. Europe lost .4% as France and Germany were both down. The dollar climbed again, gold is up sharply and near $2,700 per ounce, crude oil is modestly lower. Japan fell 1.8%, Shanghai and Hong Kong up modestly.
Earnings from ASML were out early Tuesday and they were horrific. That took some other equipment companies and semiconductor names with it. Bank earnings from GS, C and BAC were very good, they should bounce back. MS reports this along with ABT. Later tonight AA, PPG, CSX, EFX and KMI.
What started out as a positive session turned ugly in a hurry. Early release of earnings from ASML quickly put the market on the defensive, and while breadth was positive, without the Nasdaq and Industrials providing fuel there was little reason to side with the bulls. Certainly the markets are due for a respite, perhaps even more than that here but given the sharp move lower it shows how delicate this rally has become.
Breadth was positive, that is all the good we can say about it. Sadly, the buyers were stopped cold midday as a violent surge of selling hit the markets hard. Huge sell programs likely triggered by algos and gamma flooded the markets all session. Oscillators were little changed, though a positive day here could change the wheels of fortune. New highs remain strong and are on a buy signal.
Volume was pretty good on the day, but that is not saying anything positive as the markets were down. So, that would chalk up another distribution day for the markets, if we see a cluster of these show up that would present a problem for this market rally. As has been custom, we have seen markets rally back sharply from days like Tuesday, usually the following day. We’ll see if that magic continues.
As mentioned yesterday, pullbacks were being bought – until they are not. The rhythm of the market seemed to be disturbed by that ugly ASML earnings report. Yet, we do have some short term support levels to work with, the Nasdaq just under 20K and then ato 19,500 while the SPX 500 has 5,800 as a short term level, 5,700 and then 5,500 quite a bit further down. We don’t expect to see that level tested barring a disturbance in ‘the force’.
The Internals
What’s it mean?
The internals do not show us how ugly the session was. In fact, if you look at the raw data you might think it was a mild session, save for the nasdaq ticks. But it was extremely ugly and bearis, with a rise in VIX off the lows, a rise in put/call off the lows and a huge drop in VOLD and ADD.
If we had ended the day at noon, this might have been constructive for the bulls, but all told it wasn’t. Danger on the horizon if today is a weak session.
The Dynamite
Economic Data:
- Wednesday:import prices
- Thursday:Retail sales, jobless claims, philly fed, industrial production, cap utilization, biz inventories
- Friday:housing starts, building permits, fedspeak
Earnings this week:
- Wednesday:ASML, MS, ABT, USB, SFY, AA, KMI, CSX, DFS, EFX
- Thursday:TSM, TRV, ELV, INFY, MTB, NFLX, ISRG, WDFC, MRTN,
- Friday:CMA, SLB, AXP, PG, RF, ALLY
Fed Watch:
More Fedspeak this week but not as much as last, when we had 15 speakers in total! Whew! The inflation reports last week were mixed but they still see the fed cutting at least once and likely twice before the end of the year. Last week’s release of the Fed minutes pretty much told the story there, rates have backed up to be more aligned with fed talk.
Stocks/Issues to Watch
Retail sales – With a huge jump in retail spending over the summer will this be cooling down before the holidays?
Earnings – Later in the week some big names will report earnings, and this will likely be a market moving event.
One thing to remember, you don’t want to be too short during earnings season.
Boeing – Not that it matters much, but Friday after the close the company snuck in their earnings results early, a huge loss and 17K jobs being cut. Who does this on a Friday night, like a massacre? The stock may be hit hard.
