The Fuse
What are futures doing?
First day of the new month and the ES futures are not in a happy mood. Stocks look poised to fail sharply at the open after a miserable Monday performance. We often see good money flows coming at the start of the month but September may be a different story.
News
Asian markets were lower overnight, Japan off by .15%, Hong Kong down .9% while Shanghai slipped .16%. The dollar is slightly higher, gold down better than 1% while silver down more in volatile trade. Crude oil is higher and pushing towards $90 on WTIC. Global bond yields are higher, STOXX was down .6% led lower by France and Germany. The FTSE down .9%. Yields are up, german bunds rose 3bps while 10 yr US treasury yields were up 3bps, too.
Volatility
We mentioned last week the dangers of low volatility that made the markets vulnerable to some downside, even if the VIX rises up to say 17-18%. That appears to be happening, there is no bid in the market this morning but sellers are taking charge.
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Interest Rates
Yields are up globally, seeing bunds at decade highs, UK gilts up near 6% while the 10 yr US treasury yield moves toward 5%, anathema to stocks. The yield curve is shifted upward, all maturities rising in yield and lower in price. High yield might soon be in trouble if the economy starts to bend down. Fed funds futures seeing a better chance of a hike later this month. The labor report Friday may hold the key to the answer.
Earnings
We have some big earnings upcoming this week including Palo Alto, Broadcom, Credo, Snowflake, Dell and MongoDB. All could move markets significantly.
Events
We continue to be in a really tight range, markets fell sharply at the open and never really recovered. Market volatility is absent, after the first big drop the market traded in an extremely tight range all session long. This is not a trader’s market, rather a lethargic one that begs a good trader to wait and be patient. Eventually the conditions will improve.
Breadth
Just awful breadth as this indicator remains on a sell signal. Ugliness in the internals (see below) and the oscillators, which are firmly in the negative. New lows are starting to rise as well, even though some groups like software are showing signs of life. Higher rates mean small caps are going to suffer and breadth will be weak as a result.
Volume
With the weak action comes weak volume, traders have nothing to be proud of lately. Volume trends are either bearish or stuck in neutral, until that changes the market remains rangebound. No question this is frustrating to everyone, but eventually the conditions will improve, and more volatility may get some investors off the sidelines. For now, it is just tip toe into some ideas and hoping there is some followthrough. NVIDIA is one that trapped many and did not give an opportunity to buy yet, perhaps it is coming (as an example).
Support Levels
If the daily chart is still in a wide range, the intraday chart is something much different. After the first trade of the day the SPX 500 futures traded within a 15 point range all session long. That is remarkably tight, and while there were some sectors like cyber and software up nicely yesterday the bigger picture showed market weakness (see breadth). A tight range could mean a lack of buyers but also a lack of selling, which we expected could happen with a rise in rates.
The Internals
Nothing but red and weakness all around in the internals yesterday. Look at those ticks, red as can be as sell programs dominated the action. the VOLD with a pathetic performance, not too surprising with breadth and volume so poor. VIX popped but then traveled lower all day but still finished in the green, while put/calls rallied. Sets up for a turnaround Tuesday perhaps, first day of the month. Rates continue to rise.
The Dynamite
Economic Data:
- PMI, ISM, construction spending, JOLTS
- Wednesday:ADP, factory orders, fed beige book
- Thursday:Jobless claims, trade balance, PMI and ISM, Fed speak
- August NFP, wages, hourly earnings
Earnings this week:
- Tuesday:NIO, RZLV, MDT, HMR, CRDO, DELL, PANW, MDB, GTLB
- Wednesday:FCEL, CXM, GIII, OLLI, DAKT, AVGO, HPE, SNOW, NTAP, FIVE, CHPT, PVH, GOLD
- Thursday:CIEN, WLY, VSXY, LE, GCO, DLTH, BRC, CPB, TTC, PATH, AMBA, DOCU, ZS, LULU, IOT, ASAN, PL
- Friday:KNOP
Fed Watch:
Well, the Jackson Hole Conference came and went with little damage to the markets. We did not expect Kevin Warsh to say too much given the committee has a meeting coming up in a few weeks. They remain data dependent and will be looking for reasons not to raise rates down the road.
Stocks to Watch
Software names – Strong earnings from Salesforce has re-kindled animal spirits into this group. Will it be short-lived or carry further into the end of the quarter?.
Jobs – The August report comes out Friday just before a long weekend. Last month saw weakness in labor, this month is important to see if a trend is established.
Volatility – The VIX is now nestled into its low of the year, under 15%. That is a dangerous level and smacks of complacency. This is not the time to be all-in the markets financially or psychologically.
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