The Fuse
Equity futures are soft as they continue to push down following yesterday’s surprising move lower. The CPI came in hotter than expected and the indices responded in kind. With PPI on deck following two hot readings this year, bulls are holding their breath that another leg down won’t commence.
Interest Rates are steady after a sharp move upward following the CPI. The 10 yr hit more than 4.5% yesterday as the hope for rate cuts in the near term fades. Money flows into bonds has been negative for over a month while bond volatility has been rising. If bond bulls continue to sell we’ll see rates on the 10 year hit 4.7% or more.
The Fed meeting minutes were out yesterday and pretty much told the same story we have been hearing – higher for longer. That is no surprise, but the high inflation readings this year are, as the market contemplates whether a more hawkish policy is going into effect. Yes, that would mean more rate hikes if inflation continues to remain elevated. The ECB has a meeting today and will have a policy statement. They are expected to stay with their current funds rate. Copper continues to move higher, gold and silver are rising, too.
Nothing much yet on the earnings front but Friday will be a big day with some big banks releasing their numbers on that day. Delta posted strong earnings and guidance this morning. JPM, BLK, C, WFC are out Friday morning.
A really tough day for the bulls as the much hotter CPI for March put them on the defensive. It wasn’t so much this particular number was bad, rather there have been a streak of very hot numbers of late (all of 2024) that have been largely ignored up until now. With PPI out today and prior numbers hot, will they ignore this one, too?
Breadth was horrendous from the start of trading and only barely got better. This indicator is firmly on a sell signal. The oscillators went deep negative and if today repeats they could reach severe overbought for the first time since mid January. That was an interim bottom, but the conditions today are far worse than just three months ago.
Reversing Tuesday’s tepid accumulation day was emphatic. Not only was it notched as distribution, it was the fifth by my count over the last three weeks. That spells trouble with a capital T. Breaking the 5,200 level once again on heavy turnover signals volume is now on a sell signal (see below).
As we have noted several times the market seems to struggle getting through resistance. That seems to be a problem right now, and unless some bullish character shows up there is plenty of downside action to be had. With the SPX closing at 5,160 there is a vulnerability to reach down to 5,050. If that level is broken the index will shift to bearish very quickly, and plenty of downside targets will be on notice. Nasdaq is clinging to 18K and that may fall in the coming days.
The Internals
What’s it mean?
Futures fell sharply after the CPI was released yesterday and there is no recovery whatsoever. You can see it in these internals, which have been showing us some weakness even on days the market is higher. VOLD was straight down all session, ADD was down and stayed down all session long, but look at the put/call ratio in the bottom right. We don’t talk about it too much, but it tagged 1 yesterday, which can be a reversal sign (eventually). We are probably going to need an oversold reading and a few more of these before it matters..
The Dynamite
Economic Data:
Thursday:jobless claims, PPI, auctions
Friday:consumer sentiment, import/export prices
Earnings this week:
Thursday:KMX, FAST, CONN
Friday:JPM, BLK, WFC, C, SST
Fed Watch:Lots of fed speakers last week and the main theme was – higher for EVEN longer! The data has been relatively strong and even some inflation is starting to creep in. That could be
Stocks to Watch
Inflation – Big inflation numbers coming this week with PPI and CPI. Last two months were pretty hot.
Banks – Financials will kick off the earning season on Friday, high expectations are priced in.
