The Fuse
Equity futures are rallying this morning after four very strong down sessions that took the SPX 500 down below the key 200 day moving average.
If the index finds some support here we could see a modest rally attempt.
Interest Rates started off lower this morning but are bouncing back. Word of a big hedge fund (Bill Ackman) saying he closed his bond short now has those shorts scrambling to cover their bonds. This could last several sessions and put in a bid under bond prices.
Not much on the news front overnight, the SPX did test the 4,200 level and closed modestly above there on Monday. Market internals were atrocious but we are heading into a very bullish seasonal period with a strong history of optimism.
Strong beat this am from GE, MMM and VZ and RTX as stocks are trying to rally in the biggest earnings week yet for Q3. KO also impressed. Volatility is higher but the VIX is down this morning, bulls are trying to make a stand here, and with big earnings later today that might do the trick (Google, Microsoft).
A big week of earnings coming up and the GDP report for Q3, which may show some very strong growth in the quarter.
Breadth was poor once again while new lows continue to overtake new highs. More than 2-1 negative, the internals were bad all session long and while there was some rallying towards the end of the session, the bears have the upper hand at the moment..
Volume trends remain bearish, heavier volume to the downside for a fourth consecutive session (see the VOLD below). Though total volume was lower than Friday, there was certainly a feel that sellers were not completely finished yet. If the market rallies on poor volume that tells us there is no conviction in the buying.
Support gave way on Friday and continued lower yesterday with pretty strong price action to the downside. While some believe this to be a buyer’s strike, there is no question sellers are active right here. An oversold rally is due and likely sometime this week, but the 200 ma is now going to set up as resistance, along with the 20 ma 4300 on the SPX 500.
The Internals
What’s it mean?
October has been a scary month for the bulls, with plenty of downside action and little to boast about on the upside. The VOLD says it all (top left); four consecutive down sessions and closing at the lows of the day. TICKS were very concentrated red on the NYSE and the Nasdaq. VIX rose early but made its high at the start of the day but did rally some off its lows. The VIX is well above it’s 20 and 200 ma, that presents a problem. Put/calls are still elevated here. Be cautious.
The Dynamite
Economic Data:
- Tuesday: S&P Global Flash Services PMI
- Wednesday: Crude inventories, housing starts
- Thursday: Jobless claims, durable goods, 3Q GDP initial, pending home sales
- Friday: PCE price index September, Michigan Consumer Sentiment
Earnings this week:
- Tuesday:MMM, KO, GLW, GE, GM, KMB, NUE, PHM, SHW, VZ, GOOGL, FFIV, MSFT, SNAP, V WM
- Wednesday: BA, GD, H, NSC, IBM, META, KLAC, EQIX, URI, WHR, PPC, LC
- Thursday: MO, AMT, BMY HOG, HAS, HSY HON, MA, KDP, NOC, UPS, VMC, AMZN, BJRI, SAM, CMG, DECK, DLR, F, INTC
- Friday: ABBV, AN, BAH, CHTR, CL, XOM, CVX, SWK, NWL
Fed Watch:
Probably a slower week of speakers this coming week after a barrage of Fed speak and a killer Q/A from Chair Powell. The Chairman was adamant about current monetary policy and state at least one time that ‘financial conditions were not tight enough’. That torpedoed the market, though he did say the committee could perhaps pass on a rate hike at the next meeting, yet he left the door open to raising rates in future meetings – as he should. We’ll update this week if there is more information from speakers, but after this week the Fed goes into a quiet period.
Issues/Stocks to Watch this Week
Microsoft – Earnings are out on Tuesday, and much has been made about their recent acquisition of Activision and their growth plans with cloud.
If you recall, last quarter they saw a slowdown in this growth and it hit the stock hard. If that is heard again, we may see another leg lower.
Volatility – VIX picked up this week as some fear is starting to permeate the markets. That may spill over this week, but a spike up in VIX and a fall down could lead to a nice rally, too.
Interest Rates – A spike above 5% for the 30 and 10 year were not pleasant news for the stock market. As a result, bond traders continues to sell bonds at a brisk pace and so does the Fed, who shed another 19 billion in bonds from their balance sheet.