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The Fuse

Stocks remain on the defensive again this morning as it appears the sellers retain control. Futures are down modestly but there is some heavy data later today and then Jackson Hole conference gets underway.

Interest Rates are rising a bit as bond investors trim some positions before Jay Powell might talk about monetary policy. 2 year yields are steady, high yield remains strong as spreads are tight. Fed funds strongly see a cut next month but with less conviction than a week ago.

Stocks are struggling this morning, the STOXX in Europe is not much to blame though as that index fell only .1%, small drops in France and Germany. The FTSE was up slightly, gold is weaker by about .5%, silver is down but crude oil is up nearly 1%. Yields are rising, German 10 yr bunds yields up 2bps, US 10 yr yields up 1bp and in Asia, Japan was down .6%, Hong Kong down .4% but Shanghai up slightly.

Earnings last night from Nordson was lights out and the company gave some solid guidance. Walmart is up this morning along with a handful of smaller names, tonight we have Zoom, Intuit, Workday and Ross Stores.

More downside action for the indices but again breadth was not horrible, save for the Nasdaq which has been abysmal this week. One thing we have noticed is a rotation that has been happening over the past few sessions. It may mean something or nothing at all. However, if stocks rotate from growth to value that simply means money is trying to find a home, and value stocks do not generally garner all that much interest. We’ll see how this goes.

Once again decent breadth for the NYSE as the markets were thumped by the bears. It is interesting how breadth is expanding to include several sectors other than tech, is it just a hiding place for now until the Fed meeting or something more positive. To be sure, rates have come down a bit and are fueling some energy in small caps, though that did not happen yesterday. Oscillators remain negative but are not oversold enough yet for a rally.

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.

A good pullback yesterday to test some support levels. The Nasdaq continued its losing ways and nearly tagged the 50 ma, while the IWM small caps reached down to hit 225. Problem here is 226 was the support level! SPX also tested support at the 20 ma and succeeded, though it needs a followthrough up session today.

The Internals

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What’s it mean?

More lethargy from the internals as there is just no direction given by these indicators. Perhaps some guidance later in the week or month, but clearly the bulls have run out of steam. ADD finished off the lows of the day but still below zero, the VOLD continues to be a mystery, no volume into the market buyers at all. TICKS mostly red early in the day but some buy programs late signaled some nice green arrows. Just nothing to write home about here.

The Dynamite

Economic Data:

• Thursday:Jobless claims, philly fed, PMI services, manufacturing, existing home sales, leading economic indicators, Jackson Hole conference begins
• Friday:Jackson Hole conference

Earnings this week:

• Thursday: WMT, HOV, CSIQ, ZM, WDAY, INTU, ROST.
• 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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