The Fuse
Equity futures are weak this morning, carrying over from Tuesday’s massive spill. We have seen a wreck from overseas markets that has influence on the US markets, but sentiment is getting fearful, albeit slowly. Many are worried about the start of September, a month which has notoriously been poor for the bulls.
Interest Rates are modestly lower as the safety play towards fixed income is in play. Bond holders are looking for some yield after it appears the economy is slowing down, perhaps much faster than many expected. Two year yields are now safely under 4%, the inversion with the 10 year has just about disappeared.
Fed futures are leaning towards a more aggressive Fed policy in 2024, with about 4 rate cuts priced in for the next 3 meetings.
NVIDIA carries some heavy influence over the markets. Just look overseas after the big chip company lost about 11% of its value in one day, more than 280 billion dollars. Stocks in Asia were whacked hard, Japan down 4.2%, Hong Kong down 1.2% with Shanghai down a bit less. In Europe the STOXX declined about 1%, crude oil fell early but rallied to post some early morning gains. Gold is roughly flat. Today’s result will go a long way to defining the rest of the week and month.
Earnings from Zscaler were a miss as was guidance, the stock is getting pounded. Dick’s delivered strong earnings and guidance and is up modestly, but Dollar Tree tumbled hard on a miss and lower guidance, increasing pressure on its customer.
What a disastrous start to the new month. Stocks really got pounded and that was from the opening bell. After a three-day weekend buyers were in no mood to pick up any bargains. In fact, the price action was similar to what we saw a month ago, but of course that catalyst was the ‘yen carry trade’, which pushed volatility up to the stratosphere. This time around is a bit different, not much panic here yet.
Breadth was atrocious from the start and just got worse and worse as the day wore on. The Russell 2K, which has been the one index that responsible for good breadth all around just collapsed under its own weight Tuesday. Following Friday’s strong breadth now we have the oscillators back in negative territory, which is now problematic as the price action failed miserably. With breadth moving back n forth between buy and sell signals it sets up for more volatility to come.
Turnover was brisk all session long but really kicked into high gear the last 45 minutes of trading. That is when the selling often comes in the heaviest on a ‘risk off’ day. This is called distribution or professional selling, which is not easily overcome in a short period of time. Certainly we’ll see some tests of higher levels but when volume rises it simply means strong resistance and sellers at higher prices.
Well so much for 5,600 holding for the SPX 500. That support fell like a hot knife through butter. Very little support now until 5,500 and then down to the 5,340 area. Nasdaq 100 had the worst of it and closed just under 19K. We see some support at 18,700 but even lower. The IWM has strong support at 211 but if that fails to hold it is a long way down to 200.
The Internals
What’s it mean?
Electrifying move for the markets but it was a heavy down session with no relief at all during the day. Check out the ticks, the first green tick on NASDAQ did not appear until after midday. That’s telling, the big evidence is in the other internals, VOLD just straight down while the ADD is weak, VIX really climbed up there Tuesday while put/calls were on fire. All around bad day for the bulls, we’ll see if Wednesday turns it around.
The Dynamite
Earnings this week:
- Wednesday:DKS, DLTR, CIEN, JILL, HPE, CASY, AI, CPRT, AVAV
- Thursday:NIO, FCEL, SAIC, LE, GIII, KFY, AVGO, PATH DOCU, PL, BRZE, ZUMZ,TLYS
- Friday:BIG, ABM, BRC, GCO
Economic data this week:
- Wednesday:Trade deficit, job openings, factory orders, Fed beige book, auto sales
- Thursday:ADP, jobless claims, productivity, PMI final services, ISM services
- Friday:NFP for August, hourly wages, unemployment rate
Fed Watch:
A little Fed speak this past week but nothing too notable, Atlanta Fed Chief Bostic trying to play shy about rate cuts. This coming week we’ll hear from NY Fed President Williams and Fed Governor Waller. We don’t expect much to change but those two speak AFTER the jobs report is released, so it may have some impact.
Stocks to Watch
NVIDIA – After reporting strong earnings last week the stock sold off sharply and is settling into a range. That will frustrate most traders but give it some time, the stock is likely to break out past $132 when nobody is looking.
Labor – With the markets closed Monday for the Labor Day holiday it seems appropriate the jobs report come henceforth. Last month’s reading was less than expected but economists are looking for something stronger this time around. Eyes on the unemployment rate and wages.
Banks – This group has been strong of late, especially JPM and GS. Keep an eye out here on this group as a strong breakout might bring higher prices. For sure, low rates have been seen as benefiting the banks (mortgages, refis).
