The Fuse
Equity futures are bouncing back sharply after three down sessions but a nice upside surprise by Tesla on earnings is stoking a rally in tech stocks and the Nasdaq. We’ll see if it continues.
Interest Rates are coming back down this morning as the recent pressure from bonds is easing up. The 4% level on the 2 year seems like kryptonite for stocks. Fed futures are making a modest adjustment as well to the current environment, coming more in line with the Fed’s stated pace of rate cuts.
Stocks were much higher in Europe overnight, the STOXX higher by .5% which is helping to spur a rally on Wall Street early. The dollar fell .2%, gold remains well bid and above 2,750 per ound while crude holds firm above $71. German 10 yr bunds declined by 3bps, stocks in Asia were mixed, Japan up slightly, Hong Kong and Shanghai down modestly.
Earnings from Tesla last night were terrific, margins expanding and news of new lower-cost models on the way, along with a rosy forecast. We also heard positive news from Lam Research, Celestica and ServiceNow. This morning a beat from UPS and AAL but a miss from Tractor Supply and Union Pacific. Tonight we’ll hear from Skechers, Deckers, Dexcom, Texas Roadhouse and a few others.
A third down session in a row was tough to handle but it may be over for now. The mini correction of the last few sessions burned off the overbought reading that any indicator may have had. At this juncture stocks are due for a solid bounce into the end of October, which has six more trading sessions left.
Breadth is now on a sell signal, that is not hard to disagree with. Stocks rolled over after the open and reached levels not seen in a few weeks. SPX futures fell to 5,800 at one point (low of the day) but bounced back to cut the loss nearly in half. Small caps were trounced thanks to higher yields, Oscillators ran down hard. New highs are barely squeezing by new lows now, something we need to watch closely.
Volume trends have become bearish, Wednesday was another distribution day (heavier volume to the downside). A cluster of these would be negative and put the uptrend in jeopardy. So far, only a few of these have been seen but more will be trouble. We follow the volume closely as it tells us where the trend of the market (and money) is flowing.
A good test of support for the SPX and ES futures yesterday. The SPX 500 dropped through the 20 day moving average, nearly tagged 5,750 and moved above to finish near 5,800. The ES futures nearly tagged a support level at 5,800 and bounced from there, which could lead to some upside. The Nasdaq 100 tested 20K (fell through it) and recovered. A couple of up sessions would turn this around for the bulls.
The Internals
What’s it mean?
The internals suffered from more bearish action Wednesday as there was no bid at all, until some last minute buy programs hit late in the day. The VOLD down sharply again, the ADSPD also very weak. Put/calls were on the rise, the VIX also shot higher but closed lower
The Dynamite
Economic Data:
- Thursday:Jobless claims, SPX flash PMI, New home sales, Beth Hammack (fed)
- Friday:Durable goods, consumer sentiment
Earnings this week:
- Thursday:AAL, LUV, UPS, NDAQ, CARR, TSCO, UNP, OSIS, DXCM, DECK, WDC, SKX, TXRH
- Friday:NYCB, PIPR, WT, NWL, CNC, BAH, AON
Fed Watch:
Fed speak is slowing down from the recent pace, we are nearing the next Fed meeting, which is in a couple of weeks. Much of the concern is this meeting follows the election, which some are predicting could be chaotic. I don’t expect any of the Fed speakers to pour gas on the fire, in fact the data says they should continue a slower pace of rate cuts going forward.
Stocks/Issues to Watch
Earnings – It’s a big week of earnings with several Dow Industrial components reporting, which includes MMM, IBM, RTX and others.
If these companies guide well it should be more new highs for the Industrials.
Tesla – Reporting their quarter on Wednesday evening, Tesla stock has been acting poorly. As such, playing for a big move is tricky, options already are pricing in a large move.
Gold, Silver, Bitcoin – The yellow metal closed at another new all-time high Friday, a close well over 2,700 per ounce. Silver is moving strong with gold, that metal is firmly above $30 per ounce. It is no surprise metals are moving with Bitcoin, which continues to march towards all-time highs and perhaps the 100K level.
