The Fuse

Equity futures are on the rise as the SPX 500 tries to make it four straight days up in a row. Oscillators are getting pretty well overbought here but the indices are starting to make higher highs, higher lows – the definition of an uptrend.

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Interest Rates

Seasonal strength tends to push investors back into the ring for no other reason than ‘hey, it happens every year so we should just join in’.
That’s a terrible way to invest but in this world of random stock movements, a market with no memory from day to day it’s probably not a bad approach.

Nothing yet on the earnings front but tomorrow am we’ll hear from Delta, Domino’s and Fastenal before the open along with Infosys.

Finally the markets have put together a string of wins we have not seen since the last week in August. The first week of trading in October we saw stocks sputtering out of the gate and looking to print a third consecutive down month. But you can’t keep a good bull market down they say, and certainly good internals and breadth are helping the markets rise up at mid month.

A really powerful day of breadth that led the way from the start has started to change the character of the market. Gobs of breadth are a good thing for the bulls to keep the momentum running. We are seeing several groups starting to perform better, and the more the merrier if the bull market were to continue. On the NYSE, new highs pushed up to finish positive.

More upside on Tuesday with very good turnover to boot. Some stocks are starting to breakout on stronger volume, that often leads to even more upside to get towards an overbought condition. We are certainly heading in that direction.

It seems that support level tagged over and over last week, call it 4210-4230 is the key area. Touched again last Friday, stock bolted higher
and are now 3% above that interim bottom. 4,400 is in sight though and that is where a gap will be filled and strong resistance is seen.

The Internals

What’s it mean?

The internals have improved a great deal over the past three sessions. Across the board improvement in the VOLD, ADD, VIX and put/call give the bulls hope for more upside to come. A strong bid from the start pushed the VOLD higher, but it was the crash down in volatility that seemed to trigger more buying all session long. It’ll be hard to repeat this trick as we are heading into earnings season and investors are still wary of more downside, but it’s a start.

The Dynamite

Economic Data:

• Wednesday: FOMC minutes, PPI, Treasury Budget
• Thursday: CPI, Jobless Claims, WASDE report
• Friday: Import/Export Prices, Michigan Sentiment Index

Earnings this week:

• Wednesday:
• Thursday: DAL, DPZ, FAST, WBA, INFY, SGH
• Friday: JPM, UNH, PGR, WFC, BLK, PNC, C

Fed Watch:

There were a slew of Fed speakers last week talking up monetary policy, but really nothing changed. Loretta Mester from Cleveland led the charge of higher for longer, and the committee seems head-strong to get inflation down to its 2% target, likely by the end of 2025. If that’s the case, rates will be coming down but for now we’ll have to live with higher rates, the punishment for high inflation. That said, the jobs report Friday was very strong on the headline and wages moved slightly lower.
 

Issues/Stocks to Watch this Week

Financials – Banks are in the spotlight this week, at least a few of them as we see how recent slowing in the economy and higher interest rates affect investment, loans and income. Friday is the day.

Inflation – Two big readings on inflation this week are the CPI and PPI, but other data will be scrutinized as well. The August headline saw an annualized rate of 7.2%, which is clearly in the wrong direction. Stocks took it in stride.

Internals – The indicators have been weak for about two months as the stock market glides through a corrective phase. But improvement on a Friday is not common, so with an oversold condition at hand we could see a more substantial rally develop towards resistance.

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