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Equity futures are rallying on this expiration Friday, trying to put the markets in the win column for the week. It’s been a volatile one for traders but as we forge into the heart of earning season there will no doubt be more big movements. Buckle up!

Interest Rates are sliding a bit this morning as bond investors again pick up some bargains. Small cap stocks rallied some the last few days after rates started to decline, if that continues the rest of the stock market is likely to join in. Fed futures see about 1 1/2 rate cuts being priced in by the end of the year, the first cut coming in June, but the May meeting is a 50/50 tossup.

Stocks in Europe continued their surge, up .4% on the STOXX, the dollar also climbed. Germany and France rose smartly. Gold is down modestly as is crude oil. German 10 yr bund yields fell 2 bps, the US 10 yr yield fell 1bp. In Asia stocks were mixed, Japan down .3% but Shanghai and Hong Kong both up modestly.

Solid beat for SLB on the top/bottom line this morning. JB Hunt missed last evening and is down on the news.

Sadly the markets could not followthrough on the robust showing from midweek. That is not a tragedy though, and while the trend is now shaping up to be somewhat neutral there is a worry that if markets cannot advance from that sterling Wednesday session then we are looking at a failed rally. That could be difficult to swallow for the bulls considering December was a miserable month. Back to back losing months would really weigh on investors’ confidence.

Breadth was positive yesterday but that was the only good thing to say about it. End of day selling took place as there were no buyers around to help lift prices. A strong breadth day turned into barely a positive, and now the last two weeks of the month are seasonally weak. It might matter, but with earnings season here the bulls may have an excuse. Oscillators are still positive.

The only saving grace about the down session yesterday was weaker turnover. Most of the day was a painfully slow affair, but then some volume came in late to push the markets around. Lower volume to the downside means less conviction by sellers, but certainly the lack of followthrough has to be a concern. Regardless, more volume should start to materialize as we push through earnings season.

Terrible action all day long, the Industrials could not improve on Wednesday’s strong session. In fact, an inside day, doji to the downside puts the big move in jeopardy. Nasdaq was strong most of the day but failed to push higher at the end, and that is a worry. Small caps were up barely, yields were lower as bonds managed a modest rally. It’s difficult to see more progress until there is followthrough.
 

The Internals

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What does it mean?

Back to mediocrity. The internals were clearly not leading the market higher but did finish positive, some on their highs of the day. It is just that the power of a follow-through day was not there. ADD was up as was ADSPD, but they lacked the punch, notices the weaker VOLD though it did post a positive gain. TICKS were evently distributed, the VIX barely budged and that is the reason option prices mostly fell (calls and puts). In front of a holiday, we could see the VIX come down hard.
 

The Dynamite

Earnings this week:

• Friday:SLB, RF, FAST, TFC, STT, SFY

Economic Data:

• Friday:housing starts, building permits, industrial production, cap utilization

Fed Watch:

Several Fed speakers are out this week and they will have some data to discuss. The prior week we heard from the rather hawkish Mikki Bowman who stated that rate cuts are unlikely for the foreseeable future. That notion comes from higher inflation and strong growth following the solid December payroll report. Five speakers through Wednesday will give us a preview of fed policy as they see things unfold.

Stocks to Watch

Yields – Bond yields moved up this week, the 10 year tagging 4.8%. That is not surprising as the trend in bonds has been to sell fixed income. But is it too bearish? We’ll find out later this week.

Volatility – January is not acting as many would have hoped for, with high volatility and poor data. The VIX is at relatively high levels now, higher than it’s been in over a month and trending upwards. If that continues so will the market correction.

Bank Earnings – We’ll hear from the major banks this week including JPM, GS and MS. They have been floundering of late but that could be a nice opportunity to add some shares on the cheap.

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