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The Fuse

Equity futures are a bit soft heading into the last trading day of the week. This could be a wild session as we arrive at a triple witching options expiration, which will have some very heavy volume prints at the end of the session.

Interest Rates are rising this morning as the 10 yr yield pops a bit as is the 30 yr. High yield remains strong as it reflects strength in the economy, fed futures barely budged following this week’s fed meeting, still looking for two cuts in 2025.

With no US market action yesterday we see the European markets were strong, rising .5% on the STOXX last evening, led by France and Germany. The FTSE was up a bit less, the dollar index fell .1% while gold and silver backed away. Crude oil remains well bid, up .5%. German 10 yr bund yields fell by 2bps as did the 10 yr US treasury yield, stocks in Japan were down .2% but Hang Seng gained .9%, Shanghai slightly lower.

Earnings this morning from a few names. Accenture beat across the board but offered softer guidance, the stock is down 3%. KarMax put up strong earnings and sales, later today Kroger and Darden.

We expected to see quite a bit of wild action and it happened, to a certain extent. Given the fact volatility fell so sharply (expected in front of a holiday) the range was rather narrow yesterday. Did the markets see through the Fed statement and already know what it was going to say? Perhaps, but with the Thursday holiday coming up and the summer season a slow day meant that most traders threw in the towel already on the week.

Good breadth today but it was far better earlier in the session, but the bulls will take a win after Tuesday’s slaughterhouse. Wednesday saw the return of the tech bulls and boy did they roar, but so did the crypto names such as COIN, CRCL and HOOD. These stocks are marching towards new highs and bringing other groups along for the ride. Oscillators remain negative and that won’t change but for a couple of higher sessions next week.

Though markets were up most of the day volume levels were lower than the last couple of days, but we expect to see big turnover numbers on Friday. That is because of a heavy expiration day, or triple witching when index option, options on futures and equity options all expire during the trading day. If there is a bias to the call or put side it may spill over to the following week.

With sideways action here over the next couple of days it gives the moving averages a chance to catch up to current prices. That is actually a good thing but moving sideways is not going to feel all that special. Still, indices are looking for those new highs and are not far from it, perhaps a catalyst with some news would be the magic elixir to get to those levels. Support for the SPX 500 down at 5,800.

The Internals

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What’s it mean?

At least there was no followthrough to the downside, but the bulls had the ball in their court all day and dropped it after the Fed decision. Too bad, but there is always another day. The internals were strong early but ended up down towards their worst levels of the day, the VOLD and ADD nearly zero line. VIX did get hammered as we often see before a holiday, Ticks were spread evenly while put/calls remain a bit elevated. Today should be an interesting session.

The Dynamite

Economic Data:

• Friday:Philly Fed, Leading indicators

Earnings this week:

• Friday: KR, ACN, DRI, KMX

Fed Watch:

The fourth Fed meeting of the year takes place this week as the market is predicting no change in policy. However, I believe rate cuts will be part of the conversation again, as we have seen the data move favorably in the direction of price stability. Yet, Chair Powell is likely to continue taking a more cautious approach to the very sensitive monetary policy, not wanting to tip his hand about

Stocks to Watch

Semiconductors – This group was on a roll recently until volatility started to pick up. Any deal with China on trade is likely to yield nice gains for this group, we’ll have to wait and see rather than speculate.

Oil/energy – No surprise oil prices shot up Friday following the drop of missiles in Iran and Israel. If that continues we could see a short-term tightening of supply and much higher energy prices.

Gold – The yellow metal continues to say, ‘hey, look at me’. Gold remains well bid and is a great alternative to the dollar especially if inflation and uncertainty continues to escalate.

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