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The Fuse

Equity futures are rebounding but of course that can change drastically later on today. Volatility futures are slightly lower which makes sense, after Chair Powell’s speech today there will be no uncertain events on the horizon (but a holiday coming up where volatility sellers may get active).

Interest Rates are slightly lower this morning but spreads are still rather tight. The bond market seems to be in a bullish mood of late even as rates have risen slightly. Interest rate policy is going to change at some point, sooner rather than later at the Fed so it make sense bond investors are jumping ahead of the day. 2 year yields remain steady, junk spreads are tight, fed futures now only signaling a 70% chance of a rate hike next month, down from 97% last week.

Stocks are trying to rally for the first time this week, gold is of a bit as is silver, crude oil barely changed. In Europe STOXX were up .24%, FTSE higher by a small fraction. In Asia a rally in China with Shanghai up 1.4% and Hong Kong higher by .9%, Japan up slightly less.

Strong earnings last night from Zoom and Ross Stores with reduced guidance, while a miss by Workday and Intuit have those two getting slammed.

Stocks are on a cold streak, perhaps discounting what could be hawkish talk from Chair Powell today. It’s not that anything he says would be unexpected, it is just the anticipation and the ‘get it over with already’ crowd that is on edge. There is no reason to take enormous risk here, perhaps a chance down the road but with so much uncertainty out there and poor liquidity it seems being aggressive is the wrong move.

More negative breadth but like yesterday it wasn’t horrendous. Is that what is keeping the market from being slaughtered? Certainly the bulls have not shown up to the party and may not for the rest of the month. Oscillators are negative and went even lower yesterday. New highs are printing better but the Nasdaq is not, that indicator is on a sell signal. We’ll see some resolution soon, but 6 days down in a row is a lot to digest.

We look carefully at volume trends when it is expanding. When the stock market is in retreat and volume rises each day, we say the market is under ‘distribution’. That has been the case lately, and Wednesday another day of distribution where the bears took to day prize. What does it mean? Simply put professional selling is happening, and if you’re not careful you will get left holding the bag. Be very cautious here as the bottom may just drop at any moment.

Stocks headed south again, save for the small cap IWM but there seems to be an issue with big cap tech and industrials. Below the 20 day moving average now and confirmed to the downside, we see the next support level is the 50 day moving average (not far away). The big question is whether dip buyers are interested here in adding stocks or will wait until the holiday is past.

The Internals

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What’s it mean?

The internals are not telling much of a story here with the VOLD and ADD is poor shape again. It appears volume and breadth are just waiting for something to occur, is it today’s Powell speech? Maybe so, but the internals are not inspiring anyone to buy, but sellers are out in droves. TICKS were bearish and red most of the day, VIX climbed higher as the uncertainty gets priced in. Maybe the news being done after today’s speech will bring the bulls and dip buyers back in.

The Dynamite

Economic Data:

• Friday: Jackson Hole conference

Earnings this week:

• Friday: BJS

Fed Watch:

It’s the big conference everyone has been waiting for: Jackson Hole. This annual get together of central bankers, economists, analysts and reporters is a pilgrimage for those who follow central bankers. Chair Powell will be speaking here and may shed light on Fed policy. We’ll be listening closely.

Stocks to Watch

Retail – Following Friday’s release of strong retail sales data, we’ll have some big names reporting this week. We expect good earnings but more importantly some clarity on how tariffs are affecting shoppers, inventory and pricing.

Nasdaq – As mentioned earlier, it appears the Nasdaq is taking a leg down but it could possibly be in for a sideways consolidation. Tech shares in this index have been on fire lately and could be due for a rest.

Interest rates – We saw rates pop higher Thursday after the hot PPI number. Without much data other than housing this week we watch fixed income closely to see if there is interest in buying bonds at lower levels.

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