The Fuse
What are futures doing?
Stocks are twisted again with the Industrials off by about 100 points and ES futures up slightly. We could see a bit of profit taking before the weekend, be prepared for that. Complacency is high.
News
In Europe not much movement again as the STOXX was flat, so was France but nice gains in Germany. The US dollar fell .1%, bunds and US treasuries both up 2bps, gold and silver slightly down, crude oil rallying. Japan gained again, a terrific week for Nikkei but Hong Kong was down 1%.
Volatility
The VIX is now buried under 15% and probably will stay there through the end of the month barring any news that puts fear into traders/investors. The complacency is a concern but it is only a condition to let us know how things are, not a signal. Protection is important, so is taking risk off the table.
Interest Rates
Yields are rising a bit this morning across the curve and that means bonds are selling off. Perhaps just a bit of profit taking or re-positioning for the weekend, 30 yr yields up a bit, the 2/10 spread continues to flex upward and high yield is still tight. Much less chance of a hike now for September, fed futures down to 30% probability.
Earnings
Good earnings and guidance not enough for Applied Materials (AMAT) to rise, most likely a sell on the news situation here. Not much else in terms of earnings as mostly smaller names yesterday and this morning.
Events
A record-setting day on Wall Street as the SPX 500 closed right near 7,800 for the first time and also traded above there, too. Nasdaq closed sharply higher as well and is within striking distance of an all-time high. The small cap IWM got there today with an impressive surge early in the day. End of the week might have some fireworks but it has been a strong week for the bulls.
Breadth
Finally some good breadth that tips this indicator fully into a buy signal. No question the breadth has been weak even on the up days, but we’ll take a 2-1 positive at this time of year. Oscillators firmly in positive territory too, Nasdaq making its way up to 300 or so. New highs beating new lows again, this indicator remains on a buy signal.
Volume
Lower turnover again but at least the SPX 500 and Nasdaq booked accumulation days. That is the first time both did this in about a month, and preps the market for some more upside before month end. We are likely to see more participation from traders after the holiday, but volatility is nascent at the moment.
Support Levels
Not much here to write home about as for testing levels, the recent action had been sideways and not really testing much, but the moving averages (short term) caught up in a hurry, and that will be a layer of support. Just what the bulls need for the next leg up to 8K.
The Internals
What’s it mean?
That’s more like it! Strong VOLD, first time all week as the buyers stepped in aggressively. The ticks however were not dominant green, in fact mostly even on the Nyse but green on the Nasdaq. Put/calls went lower again, this indicator now on a buy signal, while the VIX remains very low here. We’ll see if there is a followthrough on this record-setting day.
The Dynamite
Economic Data:
Friday:Retail sales, business inventories, consumer sentiment
Earnings this week:
Fed Watch:
There is no fed meeting until mid September but many are pointing towards the Jackson Hole Conference in a couple of weeks as a place that might shift sentiment. Often times the Fed Chair makes a speech that telegraphs policy, it has been used in the past as a transmission method prior to the next meeting with potential market implications.
Stocks to Watch
Volatility – The VIX is below 15%, which on its own is not a problem but indicates market players are rather complacent. If that continues there will be some price to pay down the road. Summertime though is often when we see a lack of volatility.
Small Caps – No question the small cap Russell 2K is going to benefit if rates fall further. That could be the signal after a weak July employment report, but one number does not make a trend. There could be very good reasons for the drop in payrolls.
Breadth – We have been watching breadth closely over the last six weeks, it has really been poor but now with a price breakout perhaps those on the sidelines will step up and start buying.
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