The Fuse

Equity futures are bouncing around this morning after a spectacular move higher on Tuesday. That followed the better than expected producer price index, but today we find out the consumer price number for July. If positively taken stocks may move higher into the end of the week.

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Interest Rates are falling a bit this am as there is a strong bid in bonds today. The 10 year is falling after testing the 4% area last week.
Fed funds futures are seeing a better chance of a double reate cut in September, but that is not likely unless the data comes in poorly for the economy.

Stocks rallied across the pond, levered by the US gains yesterday. The STOXX in Europe was higher by .4%. US Dollar was flat, crude oil slightly lower. Gold was up modesty, stocks in Asia were mixed with Japan rising but China’s markets down (Hong Kong and Shanghai). Volatility remains in a downtrend but is coming into a support zone.

Earnings were strong last night from Flutter. This morning weakness from Brinker but a nice beat for UBS. Tonight we’ll hear from Cisco, tomorrow am a bigger day with Walmart, Alibaba and Deere.

Now that’s more like it, say the bulls! A pretty strong move up and continuation from last week has the bulls ready to take the next step, and that might be towards all-time highs in the SPX 500 and Nasdaq. Super price action following a friendly PPI, with more to come today. However, markets are pretty overbought in the short term here so a pullback would not be unexpected.

Good breadth yesterday helped to pace the action, a rout of the bears as a better than 5-1 tilt towards the bullish side was impressive. Oscillators turned up but are surprisingly mixed. We could see a push towards overbought in a couple of sessions. New highs are starting to expand but this indicator is not flashing bull just yet. Plenty of time though, breadth is now on a buy signal.

Stronger turnover with bullish price action tells us this was a huge accumulation day. For a summer Tuesday the volume was not massive, but we would expect that to be the case. Still, better turnover and price action is impressive. Given the position of the markets now there is no doubt the next move is higher, and more volume expanding will solidify that view.

It appears the move down last week is solid and in place, with some levels tested from below that held firm. That is a bullish situation here, especially with short term moving averages turning upward. Nasdaq is in good shape too, with moving averages providing good support. We do have some levels down that could be tested soon, 18,700 on the futures.

The Internals

What’s it mean?

Huge day for the bulls as the buyers came ready to play. Look at the VOLD and ADD, leadership for the bullish trend. Both indicators finished at their highs of the session. Put/calls pointed lower. But most impressive were the ticks, especially Nasdaq, ll green. VIX was smashed, the ADSPD showed a trend up day.
Bodes well for a follow through day.

The Dynamite

Economic Data:

• Wednesday: CPI
• Thursday: Retail sales, jobless claims, industrial production, cap utilization, business inventories
• Friday: Consumer sentiment, housing starts, homebuilder confidence

Earnings this week:

• Wednesday: EAT, DOLE, CAH, UBS, CSCO, AST
• Thursday: WMT, JD, DE, BABA, AMAT, HRB, COHR
• Friday: FLS

Fed Watch:

Probably a quiet week for the Fed in front of next week’s summer conference in Wyoming, known as Jackson Hole Monetary Meeting. Chair Powell is likely to deliver the keynote speech, where he will likely reiterate the committee’s stance on policy, and probably to pull any surprises. This meeting has often been a place where clues and hints are dropped to the public eye.

Stocks to Watch

Volatility – VIX really spiked last week but has had a crash down move since Monday. With lower VIX comes more confidence from traders and investors. We’ll see if the trend continues this week with some big earnings on tap and inflation data.

July Inflation Data – PPI out on Tuesday, CPI out on Wednesday, Retail Sales on Thursday. Those are the big numbers to focus on this week as they will give us fresh data to help us and the Fed determine the direction on monetary policy.

Retail Earnings – It’s a big week for retail with Home Depot (HD) and Walmart (WMT) reporting their quarter. The charts are not terrific but they both have often surprised to the upside when the worst is expected, like now.

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