The Fuse
Equity futures are down a bit this morning after yesterday’s violent rally spurred new highs. The hangover effect is real as we have a big options expiration to deal with today.
Interest Rates are higher this morning as bond sellers are letting go after a massive run by fixed income. Fed futures have backed off slightly but are still very aggressive. The 2 yr is also backing up slightly, more profit taking.
Europe fell a bit overnight by about .4% as some traders took profits following a strong early part of the week. The. dollar was flat.
German 10 yr bund yields fell 2bps, stocks in Asia were mixed with Japan up another 1.5% and Hong Kong up solid, 1.3%. Shanghai was flat. Gold is ripping higher again today as is silver, crude oil down about .5%. It’s a big options expiration day.
Earnings for FedEx were a total bust, missing on the top and bottom line and with poor guidance, the stock is down heavily. Lennar reported strong numbers and guidance though margins may be a bit weaker than expected.
What a day for the bulls after a sound rejection of highs on Wednesday. Clearly the response to the Fed’s aggressive 50bps move was taken positively around the world, some pretty strong gains ensued following the bold pivot. Stocks continue to reflect bullishness but may to tipping towards overbought, just in time for end of quarter gaming to occur.
/Breadth was skewed positive all day long as this indicator remains on a buy signal. Gobs of breadth are very bullish and that is indeed the case over the past couple weeks. Oscillators though are now pushing overbought, a red flag alert. New highs trounced new lows again, this indicator remains in the bull camp.
Turnover was brisk as the pullback Wednesday put some investors/traders on the defensive. When the markets opened up however the next day they found themselves chasing after the market, which put more volume into the system. All in all, we have had a decent week with good turnover, but the biggest volume print will be today, expiration Friday.
Bulls say ‘game on’, with some new highs tagged on the SPX 500 and Dow Industrials. It is tough to find good support levels but they are found at breakout points, the SPX 500 would be 5,650 while the Industrials have support at 41,475. However, do not be surprised if these levels are taken out at least temporarily. Better support for the SPX 500 is 5,400 – the scene of the 9/11 reversal.
The Internals
What’s it mean?
Amazing reversal day on pretty good internals. The VOLD was pushing higher all day and finished on its highs, the ADD started higher and slowly lost strength, but still finished high. Put/calls strangely curled up, that might be some protection buyers late in the day. VIX was obliterated and closed under 17%, finally Ticks were demonstrably bullish all session. Bodes well for some followthrough.
The Dynamite
Economic Data:
- Thursday:Jobless Claims, Philly Fed manufacturing, existing home sales, leading economic indicators
- Friday:N/A
Earnings this week:
- Thursday:DRI, CBRL, FDS, FDX, LEN, MLKN, SCHL
- Friday:N/A
Fed Watch:
It’s time for the Fed meeting this week, and all bets are on that we will see the first rate cut in four years since dropping the rate to zero to counter the aftermath of the covid pandemic. With supply chain issues and a flood of money in the system it was difficult to fight off inflation trends, but they are winning now and see a clear path towards a soft landing. The market is ahead of the Fed though and that could mean a sell on the news if they are not given what is expected.
Stocks/Issues to Watch
Federal Reserve – It is widely expected the Fed meeting will conclude embarking on a new and dovish interest rate policy. After nearly 15 months of extreme tight policy it seems the Fed is ready to loosen, but not as aggressively many would believe. Let’s watch the fed futures respond.
Options – A big expiration and rollover is upon us this week. We often see quite a bit of movement with futures and volatility during this triple witching time, let’s see if there is some opportunity to trade it.
