The Fuse
First day of trading after expiration is often a down session, and it appears the opening will be off. We know the markets don’t go up everyday forever and there are likely to be risk off days when nobody is expecting it. In a downtrend, that brings in more sellers but during an uptrend like we are currently in that means dip buyers may step in aggressively on a move lower.
Interest Rates are about unchanged to slightly higher this morning as fixed income investors await a big week if fed speakers to see where their minds are at. High yield remains strong though with tight yield spreads, fed funds still seeing two rate cuts by the end of the year.
Futures are lower this morning, in Europe the STOXX fell .2% but with larger decreases in Germany and France. FTSE lost .1%, the dollar index flat. Gold is ripping higher as is silver, crude down just under 1%. Yields in US and German 10 yr bunds rose up 1bp, in Asia stocks were mixed with Japan up 1%, Shanghai up .2% but Hong Kong down .9%.
Earnings this week are sparse but we’ll hear from Costco, Micron and Jabil. These may move markets.
After the Fed’s meeting volatility collapsed and the bulls really started to make some moves. The trend has been strong and to the upside for weeks, momentum is carrying stocks all the while. On a price basis stocks could be considered overbought but don’t forget that is simply a condition that could last awhile. Many have pointed towards high valuation levels, of course that is relative and if earnings come in strong that simply means the p/e will level off if not come down.
Breadth was atrocious on Friday, better than 2-1 negative and that puts this indicator back in bearish territory. However, it has been known to flip/flop back from buy to sell, and if there is some positive breadth we’ll have that flip one more time. Oscillators are mixed still with Nasdaq strong, new highs are still hitting against new lows. This intermediate indicator remains on a buy.
Volume swelled on Friday as expected on a triple witching options expiration. It won’t mean too much this week unless there are traders who were put stock and then we might see a bit of early selling and higher volume prints. By and large with the jewish holiday upon us we could see turnover really dissipate the rest of the month until the last trading days of the quarter.
Support levels are still rather far away from current prices and if the small cap Russell 2K gets rolling it just means more time away from testing levels. That’s fine though, and as we experienced in August if there is simply a tight consolidation period in terms of price and time the moving averages can catch up.
The Internals
What’s it mean?
Nothing impressive from the internals on Friday. Stocks were up but the stats were down, VOLD and ADD finished as bad as could be expected. Put/calls are now on buy signals barely, ticks were mostly red as a slew of sell programs hit. This being a big options expiration day there was plenty of noise, but suffice to say the bulls were satisfied. VIX remains low and risk is high here for a selloff, but we won’t get in front of it.
The Dynamite
Economic Data:
- Monday:FEDSPEAK
- Tuesday:Chair Powell, SPX flash service and manufacturing
- Wednesday:new home sales, Mary Daly speaks
- Thursday:Austan Goolsbee, GDP estimate, durable goods, inventories, existing home sales, fed speak
- Friday:PCE, consumer sentiment, more fed speak
Earnings this week:
- Monday:FLY, GNFT
- Tuesday:AZO, MU, AIR, WOR, AYTU
- Wednesday:CTAS, UEC, THO, KBH, FUL, SFIX, SCS, WS
- Thursday:ACN, KMX, BB, JBL, SNX, LUSE, COST, CNXC, LGCY, LPTH
- Friday:KNOT
Fed Watch:
The Fed policy switched to more dovish this past week and we’ll hear quite a few of the members talking this week including a speech from Chair Powell. It’ll be interesting to hear everyone’s viewpoint so close to the window of the prior fed decision.
Stocks to Watch
AI – It’s been a big summer for the AI stocks and there could be some more upside to go before the end of the year.
Bitcoin – The big crypto currency is looking to break out and that might just happen starting this week.
Market volatility – The VIX is extremely low and displays complacency by market players. That is a dangerous situation as we come up to quarter end.
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