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The Fuse

Equity futures continue their slide from last week’s pasting. The ES futures are threatening to break 4,200 on the downside, and that would open up a flood of selling. Markets have very little bid here but are approaching a deep oversold condition, which could bring a nice snap back rally (probably not today).

Interest Rates are up this morning as the 10 year ticked over 5% for the first time in a long while. Rates have been strong as yields rise up into a hot economy, too high inflation and a hawkish Fed.

The war in Israel was kicked up a notch this weekend, stocks in Europe were down while the confusion in Washington remains an issue. Less than a month before a government shutdown is possible.

Earnings palooza this week with names such at KO, MSFT, GOOGL, V, TXN, GE, VZ HLT and BA early in the week. Plenty of volatility to come.

A big week of earnings coming up and the GDP report for Q3, which may show some very strong growth in the quarter.

Breadth was atrocious again Friday as the buyers are just not interested at these price levels. It makes sense too, rates are high and there is turmoil in the Middle East, news could certainly sway investors to sell more. Breadth is on a sell signal, new lows also swamping new highs.

Volume was elevated again, a third straight day of distribution has the markets in corrective mode. How much longer? We won’t make predictions here but suffice to say it is important to have protection on if you have calls working or long positions.

The 200 day moving average fell like a hot knife through butter on Friday. In fact, the markets accelerated downward at the end of the day and finished on their lows, not good for the bull case. The early October lows were eclipsed at 4,230 as well, and if 4,200 doesn’t hold it is going to be extremely bearish and a run towards 3,950 is very likely.

The Internals

What’s it mean?

It’s been a miserable week for the markets and the internals have captured it all. No need to look any further than the VOLD, which closed at the lows for three consecutive sessions. That is some heavy selling going on, and the ADSPD with twin trend down days is indicative of the pain suffered by the bulls. VIX shot higher, levels not seen since March 2023, put/calls are on the rise too while the ticks exploded with red, just not good for the markets right here.

The Dynamite

Economic Data:

• Monday: Chicago Fed National Activity Index
• Tuesday: S&P Global Flash Services PMI
• Wednesday: Crude inventories, housing starts
• Thursday: Jobless claims, durable goods, 3Q GDP initial, pending home sales
• Friday: PCE price index September, Michigan Consumer Sentiment

Earnings this week:

• Monday: PHG, CLS, LOGI, PKG
• Tuesday: MMM, KO, GLW, GE, GM, KMB, NUE, PHM, SHW, VZ, GOOGL, FFIV, MSFT, SNAP, V WM
• Wednesday: BA, GD, H, NSC, IBM, META, KLAC, EQIX, URI, WHR, PPC, LC
• Thursday: MO, AMT, BMY HOG, HAS, HSY HON, MA, KDP, NOC, UPS, VMC, AMZN, BJRI, SAM, CMG, DECK, DLR, F, INTC
• Friday: ABBV, AN, BAH, CHTR, CL, XOM, CVX, SWK, NWL

Fed Watch:
Probably a slower week of speakers this coming week after a barrage of Fed speak and a killer Q/A from Chair Powell. The Chairman was adamant about current monetary policy and state at least one time that ‘financial conditions were not tight enough’. That torpedoed the market, though he did say the committee could perhaps pass on a rate hike at the next meeting, yet he left the door open to raising rates in future meetings – as he should. We’ll update this week if there is more information from speakers, but after this week the Fed goes into a quiet period.
 

Issues/Stocks to Watch this Week

Microsoft – Earnings are out on Tuesday, and much has been made about their recent acquisition of Activision and their growth plans with cloud.
If you recall, last quarter they saw a slowdown in this growth and it hit the stock hard. If that is heard again, we may see another leg lower.

Volatility – VIX picked up this week as some fear is starting to permeate the markets. That may spill over this week, but a spike up in VIX and a fall down could lead to a nice rally, too.

Interest Rates – A spike above 5% for the 30 and 10 year were not pleasant news for the stock market. As a result, bond traders continues to sell bonds at a brisk pace and so does the Fed, who shed another 19 billion in bonds from their balance sheet.

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