The Fuse
Equity futures are modestly higher today, trying to use the strong Alphabet numbers to ride the streak this week to three. The Industrials though are down hard with weakness in Caterpillar and only moderate gains in Visa. The biggest names will be reporting over the next three sessions. GDP for 3Q out early this morning.
Interest Rates are coming down this am after a strong surge higher over the last month. Some bond investors may have been put off by the Fed’s big rate cut move, believing it might spur inflation to re-appear. That is why we have seen the strength in gold and silver. However, it seems 4.35% on the 10 year may be the peak.
Stocks across the bond in Europe were down sharply, off .6% on heavy turnover. The dollar also fell, gold is rising and near 2,800 per ounce, silver up strong as well. Stocks in Asia were mixed, Japan up 1% but Hong Kong and Shanghai were lower. Crude oil up about 1.2%, a nice move up. German 10 yr bund yields fell 3 bps, the 10 yr down 1 bp to 4.24%.
Earnings last night from Alphabet were strong across the board, the stock up 6% this am, also SNAP earnings came in better than expected. AMD disappointed though as did First Solar, Chipotle is off a bit. This morning a disappointing report from Lilly, the same from Caterpillar. Humana was strong, Biogen beat and raised guidance as did ADP. Tonight we’ll hear from Microsoft, Starbucks, Meta, Coinbase, RobinHood, Etsy, Roku and others.
Positive price action on Tuesday led to a followthrough day, which is bullish. But then again, turnover was not substantial and thus not an accumulation day for the Industrials (which were down) nor the small cap IWM. Yet, the Nasdaq was stronger and tagged a new high, it should blow through it later today, the SPX 500 is flirting with a new high as well. Perhaps some buyers are simply waiting until the election is over.
Horrendous breadth yesterday puts this indicator back on a sell signal. Oscillators are separated, NYSE much worse of at -147 but the Nasdaq did drift negative. That is a concern. New highs ahead of new lows but not expanding much, this is still bullish until further notice.
Volume trends were mixed, with the large cap SPY and QQQ getting the bulk of the work while we had poor turnover in the small caps and Industrials. That saved those losers from being distribution days, but the Industrials are now down 6/7 sessions, a very negative trend in the price action. The bulls need to see that turn quickly or face the challenge of a much deeper correction to come.
The SPX 500 seems to have good support now at 5,800 while the Russell 2K tries to hang onto the 20 day moving average. That level has been tough to overcome. The Industrials fell below the 20 ma last week and has not come close to it, in fact a try yesterday to tag it was rejected soundly. Good support for the Nasdaq 100 at at 20,200 and a move to 20,600 (might be this am) would set the stage for a run to 21K.
The Internals
What’s it mean?
We mentioned yesterday’s positive internals were nothing to be relied upon. Yet, the markets were mostly higher on Tuesday but the internals were atrocious. The VOLD tanked hard, sell programs were sprayed early in the day, see the red TICKS as the ADD was quite weak. VIX did close lower and may actually receded more today, a break below 18% would be a huge deal this week. Plenty of reasons to sell this market but they just are not doing it yet.
The Dynamite
Economic Data:
- Wednesday:ADP, GDP first look, trade balance, retail/wholesale inventories, pending home sales
- Thursday:personal income/spending, PCE, jobless, claims, employment cost index, Chicago PMI
- Friday:October labor report, S&P FINAL PMI manufacturing, ISM, construction spending, auto sales
Earnings this week:
- Wednesday:LLY, CAT, HUM, BIIB, EAT, ADP, SAN, MSFT, META, COIN, HOOD, ETSY, ROKU, SBUX, CVNA
- Thursday:UBER, PTON, MRK, COP, SIRI, MO, MA, EL, NWHL, AAPL, AMZN, INTC, TEAM, ARDX
- Friday:XOM, CVX, FUBO, W, CHTR, LYB, BFLY
Fed Watch:
No Fed speakers scheduled for the week but they said plenty in early October! Several members stated in no uncertain terms they are not going to move aggressively on rate cuts. The market still does not believe it, but so there is a disconnect. The Fed always wins when it comes to policy, but the futures market is going out on a wire, expecting two cuts. They are likely to be disappointed.
Stocks to Watch
Mag 7 – It’s a big week for these high voltage names. We had a big move up in one name last week in Tesla, and five others will report this week including Apple. No doubt these stocks will beat handily, but we’ll have to listen closely to guidance. Most have been beaten up the last couple weeks, a good response would lead markets higher.
Labor Report – The all-important labor report comes out Friday and that will be a gamechanger. We had strong growth in jobs during September, will there be followup? All signs point to a goldilocks scenario, but a strong job number will push the Fed back in their rate cut adjustments.
Yields – Rates have risen sharply across the curve since the big rate cut in September. What might get bond buyers interested again? Perhaps a cooling off in the labor market and a milder than expected GDP for Q3 (out Wednesday).
