The Fuse
Equity futures are starting off lower today as the selling from Tuesday continues. We’ll have some inflation data released tomorrow that may impact markets, inflation, rates and volatility. We continue to move towards a test of the 20 ma, where buyers may re-appear. Of course, we are also in the time window of seasonal bearishness, and that may spill over to the end of the month.
Interest Rates are slightly higher this am as the fixed income market tries to reconcile the words parsed from Chair Powell on Tuesday. He seemed to throw cold water on the stock market, believing it may be overvalued but is not making a call. Just the same, he’s not wrong here – momentum has carried the markets a long way and there is a significant equity premium. Bonds are starting to look a bit more attractive from a risk/return perspective.
Stocks are weak this am as they follow Europe down to support. The STOXX was off .5% led lower by Germany and France, the FTSE down a bit as well, off .4%. The dollar index was flat, Gold is slightly but silver is up strong, better than 2%. Crude is down .5%. In Japan the Nikkei gained .3%, Hong Kong down .3% while Shanghai held steady. Yields in Germany and the US held firm.
Earnings this am from Accenture, KarMax and Jabil, later tonight Costco. Last evening a miss by KB Home and Stitch Fix.
The bears made it two straight, but the bulls do not seem to be bothered much. Sure, the early rally failed and the breadth retreated but with a very overbought market condition we have to expect a pullback to happen from time to time. If anything this would be to reset the market for the next leg higher, if it chooses to do so. Protection is so important to have on at this critical time.
Breadth was awful on Wednesday which followed up a poor breadth day Tuesday. This indicator is now on a sell signal. Oscillators are now firmly in negative territory and heading lower, but new highs are still beating out new lows, albeit less than before. This is an intermediate term indicator and tells us more about the long term trend if buyers.
While the market fell and the action was downright bearish, it was not all bad. Turnover was low, which tells us the sellers lacked conviction. That is important to that the current levels are holding firm. Further, without much volume to the downside we skirt past a distribution day. A cluster of these would be troublesome. So far only 1-2..
Well it sure appears some lower levels are destined to be tested. That’s not a bad thing though, but if you had it cranked in your head that stocks only go up every single day then you’re likely to be disappointed. The 20 ma is a ways down and frankly would be the perfect setup to buy the dip just before the end of month/quarter.
The Internals
What’s it mean?
So much weakness in the internals yesterday. Horrible VOLD and the ADD finished near lows of the day. After a modest selloff there were no buyers around to buy the dip, the VIX did come down but it was not enough for traders to add to their positions. PUT/CALL remains low, TICKS were up strong with heavy sell programs. We’ll be watching this indicator very closely for clues.
The Dynamite
Economic Data:
- Thursday:Austan Goolsbee, GDP estimate, durable goods, inventories, existing home sales, fed speak
- Friday:PCE, consumer sentiment, more fed speak
Earnings this week:
- 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.
