The Fuse
Equity futures are getting smashed as once again the new month gets off to a very poor start. If this drop holds September will follow up the start of August as one of the worst starts to a month. So far this week the SPX 500 is down 2.5% for the week and could face more severe pain today.
Interest Rates are declining on the long end of the curve, bond prices are sharply higher as the market awaits the August jobs report. It is hard to see the current situation getting better, meaning the expectation for strong job growth is high, and that is likely to shift downward. The estimate is for 166K on the creation number but ADP yesterday tells us that may be a bit much, further job openings are decelerating. Fed futures are seeing more and bigger rate cuts, and as we come close to a new monetary policy (easing cycle) we’ll have to see if the market and the Fed can find common ground. So far they have not.
Market volatility is on the rise, and while it is nowhere near the point of last month’s levels, the bulls certainly have a problem. The VIX is back above 22%, which means big ranges are going to be with us. In Europe the Stoxx declined .6%, the US dollar down about .2% as well. Crude oil is up marginally as is gold, which is keeping a nice bid above 2,500 per ounce. In Asia stocks fell, Japan down .7%, Shanghai down .8% and the Hang Seng down slightly.
Earnings last night from Broadcom were great and guidance was decent, they foresee good strong demand from their AI products. Yet, the stock is getting pounded today. Guidewire had a strong report and guided up, that stock is higher this morning. BigLots postponed their earnings report until next week. Docusign and Zumiez reported and are slightly higher.
A very sloppy and volatile session as markets moved higher then sharply lower, back up then right back down. There was something for everyone however we should understand the market is right now at a tipping point. Trading in a no mans land, there is worry in the charts/technicals that a steep drop at least to those August 5th lows could be in our future soon.
One day of strong breadth was not good enough for the bulls, though it was a shallow loss for the bears. Only a 15-12 negative move was enough to spare the bears from embarrassment, the oscillators are solidly negative and are trending lower. New highs have been reduced of late and that could be a concern. Breadth has been very inconsistent of late and if that continues this month it will eventually hit the price action.
Volume continues to be elevated on the down sessions. There is certainly an air of worry out there, we are not feeling the risk on of the markets the past couple weeks even as the markets closed strong in August. Much of those gains have been washed away during this first week of September, volume is starting to come back as investors continue to see signs of distribution. That could be worrisome.
Those lows from Wednesday held in check, but if the jobs report is not taken bullishly then they will fall sharply. We saw many big reversal candles on Thursday, a sign of rejection. Chief among them was the QQQ or Nasdaq, which shows a second consecutive rejection of highs. The Russell 2K continues to flounder, there is good support at $200. The SPX 500 tested 5,500 again and rests just above there. A break below today would be ominous.
The Internals
What’s it mean?
Very choppy session but the trend remains down. Is this a correction or something far worse? No matter, we need to take good care and not be too aggressive, else we end up paying for it. The VOLD and ADD tell the story, very slow movement. The put/call is rising again, put protection is being bought aggressively, ticks were mostly red as the sell programs were evident. VIX remains elevated as well. Friday is going to be a big day for bulls and bears.
The Dynamite
Earnings this week:
- Friday:BIG, ABM, BRC, GCO
Economic data this week:
- 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).
