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The Fuse

Equity futures are modestly lower as the lack of liquidity continues to deter the bulls. The erratic price moves are not giving the market players any confidence as it becomes a waiting game for ‘news’ this week.

Interest Rates are a bit lower this morning as fixed income buyers come back in the market for a bite. The 2 yr remains steady at 3.77%, signaling the market sees about 2 cuts in rates by 2027. High yield remains bid, fed futures have backed off significantly since last week’s PPI number, now only an 83% chance of a hike in September.

Stocks are weaker this morning and may push down to test some lower levels from Monday. The STOXX in Europe barely gained any ground, up .1% while the FTSE added the same. France was higher, Germany was flat. The US dollar index fell .1%. Gold continues to rally up towards 3,400 per ounce, silver is also up but crude oil down about 1%. In Asia stocks were mixed, Japan down .4%, Hong Kong off by .3% and Shanghai steady. German 10 yr bund yields rose 1bp while 10 yr US treasury bonds held flat.

Earnings last night from Fabrinet were good but guidance a bit shy of Wall Street expectations. Palo Alto hit one out of the park though, and this morning Home Depot barely beat expectations and provided soft guidance. We’ll hear from Toll Brothers and Carlyle later tonight.

We are in the weakest part of the month and with erratic price action due to a lack of liquidity. Monday was a great example of this and as I mentioned to our chat room folks yesterday it was a time to do very little and keep things light. Further, reducing exposure and raising cash is of the utmost importance. Stocks are likely to float around aimlessly for a few days, even up/until Labor Day.

Breadth was barely positive, that is the only good thing to say about it. It feels like the market is exhausted and wants more than two days off in a row. But with trading scant this week and next it is going to be a struggle to cross the finish line with any profits before the holiday. Oscillators are still negative though a bit less than the prior day, still seeing more new highs than lows as this indicator is still on a buy signal.

Following an expiration Friday we often see turnover levels lighten up. That happened yesterday with poor volume trends that seemed to have plagued the markets badly of late. More volume means more liquidity means more money chasing after stocks. When that doesn’t happen the nervous holders get worried and decide to do some selling. Will that continue?.

Perhaps just waiting for the moving averages to catch up is all the indices need for a ‘re test’. Perhaps, but selling was the order of the day Monday following a bearish expiration Friday. Perhaps we’ll get a turnaround Tuesday much like last week. Support still a bit below current levels on the Nasdaq and SPX 500, while the Russell 2K actually showed some nice positive action.

The Internals

(Click on image to enlarge)

What’s it mean?

Unimpressed, again. Nothing looked good on the internals yesterday, much like that last three sessions. Is this all we get? Mediocre action at best? It is hard to see the markets rising with this little energy. TICKS were spread out between buy/sell programs, while VIX climbed but moved downward, it was a premium eating day. ADD and VOLD just sat there and got nothing going. Is it a sign?.

The Dynamite

Economic Data:

• Tuesday:housing starts, building permits
• Wednesday:Minutes from the prior fed meeting
• 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:

• Tuesday: HD, VIK, ASO, MDT.
• Wednesday: TGT, EL, ZIM, TJX, ADI, BIDU, DY, NDSN, COTY.
• 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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