Image Source: Pixabay

The Fuse

Futures have been modestly lower this morning as the market tries to shake off news of a Boeing plane’s window blowing out mid-flight. The stock was down sharply (-8%) before the market open, and it has already been causing waves.

However, we are also in the last day of the ‘first five days’ (FFD) of January. If that is the case, January might be a difficult month for the bulls, but there is still plenty of trading left. Tech stocks were taking it on the chin last week, so maybe they will bounce back from a modestly oversold condition. Apple received two downgrades last week, putting pressure on that stock along with others.

Interest rates are up slightly this morning as the yield curve is flattening out. Rates on the short-term remain elevated, as the Fed considers whether rate cuts in 2024 are appropriate and how many will be necessary to support the economy if it starts to falter.

Aside from the Boeing news over the weekend, some big inflation reports are to hit this week. CPI is out on Thursday morning. The Cleveland Fed nowcast is looking for an annualized 3.3% inflation rate with the core rate coming in at 3%, the lowest readings in months. Earnings will be watched carefully this week. Friday’s job report was strong again, and it showed inflation is not slowing down in labor markets.

Earnings are starting to trickle out this week, and this Friday is a big day for the banks/financials. We’ll have Bank of America, JP Morgan, BlackRock, Wells Fargo, along with Delta Air Lines and UnitedHealth reporting. Monday is the last day of the FFD indicator, and it has been negative so far.

Stocks were volatile on Friday following the release of the hot labor report. More jobs were created last month, and that means it was a strong year for employment, which puts a floor under the economy. With 70% of the economy consumer-driven, it makes sense that there is good support and it also rationalizes the soft landing argument, which was reiterated by Treasury Secretary Yellen on Friday.

Breadth finished positively, but it took some great effort to get there. This indicator remains on a sell signal until there is more robust buying and better ratio of advancers over decliners. New highs are still beating new lows, but barely, and they have come down from higher levels. This is a key indicator to watch.

Volume expanded from Thursday to Friday as the volatility exploded and then imploded following the jobs data. It seems the market did not want to go much lower on the session. There were buyers in place to pick up the pieces when sell programs hit. Remember, earnings season is upon us and we always warn about being too negative during this time period, at least for a few more weeks.

A small up finish for the indices on Friday may have felt like relief, but the first week of the year for trading was simply horrendous. Down nearly everyday, the SPX finished down by 1.5% while the Nasdaq shed 3%. The SPX finished just under the 4,700 mark but more importantly below the 20-MA, which, unless re-captured, quickly will become resistance.

The Internals

(Click on image to enlarge)

What’s it mean? It will likely be just a 'ho-hum' day, but the internals have been really mixed. Perhaps they are sending a message into the future? What would that be?

The VOLD actually was pretty positive on the day even if breadth was weaker, as noted by the ADD and ADSPD. TICKS were mostly red all session, especially on the Nasdaq (upper right corner). Put/calls rose up, which is bearish, but the VIX declined, something we’ve gotten used to when news like the NFP is released. Sell the rise in volatility, and the markets will rise with that drop in vol.

The Dynamite

Economic data of importance includes:

• Monday: Consumer Credit
• Tuesday: Trade Balance
• Wednesday: Wholesale Inventories, Mortgage Apps
• Thursday: CPI, Jobless claims
• Friday: PPI

Earnings this week:

• Monday: HELE, JEF
• Tuesday: ACI, PSMT, WDFC
• Wednesday: KBH
• Thursday: INFY
• Friday: BLK, BK, C, DAL, JPM, UNH, WFC, BAC

Fed Watch

The release of the prior meeting’s minutes last week struck a tone of cautious optimism. On the one hand, the committee seemed pleased with the trend of inflation coming down and acknowledging their strong rates have been working. On the other hand, they dismissed the ‘all clear’ signal completely, preferring to err on the side of caution even as the economy starts to slow down.

They introduced the idea of rate cuts in 2024 but refused to say when, keeping with their style of waiting on the data. This week might have some member talking down the rate cut expectations set in futures markets.

Stocks to Watch

Oil: Crude oil has been creeping higher of late in response to turmoil in the red sea, but also likely due to more supply constraints. That will keep a nice bid under crude as we see WTIC make another run towards $80. The chart is getting bullish here.

Banks/Financials: Friday is the first big day of earnings for Q4, and we’ll hear from some big major banks (see above). What they say about their business, credit, liquidity, and financial conditions will be crucial. These stocks have run hard for three months, so any bit of caution is likely to get slapped down.

Apple: A couple of downgrades this week following the end of the quarter has put Apple investors on their heels. In years past, these pullbacks have been tremendous buying opportunities. So, is this going to be another one? The stock tagged the 200-MA on Friday.

More By This Author: