It was a volatile overnight session with the ES futures at one point dropping another 20 handles following a wipeout Wednesday. They have somewhat recovered but the damage is still evident with the ES futures down modestly but the Nasdaq up slightly.
Interest Rates are up again today as the 30 year moved above 5% one more time. The 10 year is also moving upward too, and that is putting pressure on equity markets. The 2 year yield is well above 5% now, so no relief yet in the bond market.
A slew of Fed speakers today including Chair Powell, who speaks at noon EST. His comments will be diced up for clues on monetary policy, which of course won’t be divulged today. More news from the Middle East as it seems this war will be going on for quite some time. There is little to be gained here, and the markets are worried about an escalation and a ‘what if’ scenario. Volatility has been rising ever since, as has gold and crude oil.
Strong earnings from Netflix but poor results from Tesla have the markets feeling the bends. TSM also posted higher numbers and guided up, which bodes well for smart phone and computer-related names. This group has been beaten up lately. Blackstone is off after missing earnings estimates.
Markets were whacked from the start as the bears gave the bulls a whipping. It’s not uncommon to see big moves this time of year, but some investors are counting on the strong seasonal trends to be their cover for buying stocks and being long the market. Sadly, it’s never that easy – but we do need to pay attention to the calendar as sentiment, emotions and seasonality tend to be a potent tonic.
Breadth was very poor yesterday but being on buy signals this indicator is not yet ready to roll over. Yet, one more down day would do it, we saw huge distribution all day long as interest rates rose up smartly.
Heavy turnover on a down session can mean only one thing – distribution! That is big institutional selling, and we do not have the big money sponsorship in our stocks it means to step back and way. The market is still correcting, though there is plenty of support lower.
A nasty fall for the indices Wednesday as the SPX 500 looks vulnerable to a move down towards the 200 day moving average. That comes in all the way down at 4,230, another 85 handles lower. That would be another 2% move down, and already the month of October is looking rather weak. Plenty of news as well could derail this rally, we suspect some sellers coming out before the weekend.
What’s it mean?
From the start, the internals were roughed up and signaled a down session was going to be messy. That turned out to be the case, see the VOLD was sharply lower and never gave an inch to the bulls. it was nearly a trend down day according to the ADSPD, while the VIX climbed higher and actually ticked above 20% at one point. Put/calls rose up at the end of the day to more than 1.2, ticks were heavily bearish as well. A followthrough day would mean a test of the 200 ma is on the table.
- Wednesday:Housing starts, crude inventories, Fed beige book
- Thursday:Jobless claims, Philly Fed index, Home Sales, Leading Indicators
- Friday:Japan Inflation, German PPI, UK retail sales
Earnings this week:
- Wednesday: ELV, MS, PG, AA, CCI, LRCX, NFLX, PPG, SAP, STLD, TSLA
- Thursday: AAL, T, MAN, NOC, UNP, CSX
- Friday: AXP, SXT, VFC
More Fed speak this coming week, but we heard plenty the last two weeks and from the meeting minutes released on Oct 11th. It seems the latest data and information is slowly turning the Fed less hawkish, but only slightly. Yet, there are several on the committee who are willing to wait it out even longer. Let’s see how the market responds to the higher inflation readings from last week.
Stocks to Watch
Netflix – Always interesting to watch how this stock moves following earnings.
Tesla – This EV company reports earnings this week and while car sales have been brisk, the concern is over margins as Tesla continues to cut prices sharply.
Interest Rates – They rose sharply this week then collapsed again Friday, we’ll see if they make a run at new highs or fall down as the safety trade is back (Middle East turmoil). We’ll be watching gold as well, which put in a spectacular week.