The Fuse
What are futures doing?
Futures are mixed as the SPX 500 tries to put in a winning session for the first time this week. High volatility and higher rates have been the problem so far but perhaps a respite comes today. There are important economic data points to be concerned with however and that may move markets this morning.
News
STOXX in Europe was down a bit led lower by losses in Germany and France. Global bonds suffered from a steep selloff, bunds and 10 yr US treasury yields higher. Gold is still correction, silver off a vbit as well, crude oil is back below $90. The US dollar rose last night. In Asia, Japan got pounded, off 2.85%, Shanghai down about 1% while Hong Kong was off .14%.
Volatility
VIX came off its lows and pushed higher but still remains rather low. At 16% and very low turnover days the stock market participants are not expecting anything too challenging. Yet, with seasonal trends in place and chance for testing more lower levels there is a chance for better buys ahead. A VIX above 19 would not be good for the bull case.
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Interest Rates
The global selloff in bonds continues, the 10 yr hovering near 4.78% while the 30 yr is up near 5.26%. Mortgage rates are pushing 7% for the first time in many years. 2 yr yields pushed higher again, up to 4.4%, trying to force the Fed’s hand to raise rates later this month. Futures market is pointing towards this event and is probably right. 2/10 spread continues to come down sharply but the pace is slowing down. This spread is screaming for a rate hike.
Earnings
Terrific earnings and guidance from Dell last night, they are recovering losses from Tuesday’s beating. Not so good for MongoDB, Credo or Palo Alto, which posted strong numbers but are selling off early this morning. Not the case for Gitlab, rising up nearly 20% on strong guidance. Later today Snowflake, NetApp, Five Below, HPE and PVH.
Events
More bearish action as the equity market is really responding to the weakness in the bond market and increase to oil futures. In September there is no hiding behind any rock, you’ll be exposed and suddenly have some losses. This is a good time to step back and wait for better opportunities to arrive, and that could be 4-6% lower in the equity markets.
Breadth
Once again, another day of very weak breadth that is leading the markets down a dark path. Oscillators are still negative and approaching deep oversold readings where we will eventually have a whopper rally, but not there yet. New lows are ticking a bit more than new highs, this intermediate indicator still on a neutral signal..
Volume
Volume picked up a bit yesterday, distribution days clocked on the Industrials and Russell 2K. Is that harmful to the uptrend? It could be, the Nasdaq had strong turnover as well but only matched the prior session. It feels as if some are ‘hanging around’ for the turn in the markets – trying to get ahead of it before it actually happens. You know, catching a falling knife. That never ends well.
Support Levels
The Industrials landed right on support at the close, the 50 ma while the small caps are making a run to the 100 day ma. Nasdaq also tagged the 100 ma, SPX 500 is in much better shape but looking to hit the 50 ma in the coming days. We’ll see how it responds at that time and if the market is oversold enough to bounce.
The Internals
The deterioration in the internals continued yesterday, the VOLD fell through the floor, the ADD and ADSPD showed heavy weakness and the VIX rose up, closing above 16%. We talked recently about how dangerous this low volatility is for the markets and trading, certainly during this very treacherous period. TICKS were heavy red too, hardly any buy programs kicking in. At some point a rally will ensue, maybe not until after the holiday. Put/calls rallied, this indicator nearly on a market sell signal.
The Dynamite
Economic Data:
- 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:
- 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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