Today had very low volatility thanks to a lack of any meaningful news and the continued fade from the QE sugar high.

Market Statistics

After spending most of the day in negative territory the Dow shook it off in the last few minutes to end with a minor gain. The Nasdaq and S&P came close to positive but ended fractionally lower. It was another consolidation day as the sugar high from last Thursday's QE3 announcement slowly fades. Just avoiding a decent breakdown was a somewhat bullish sign given the news before the open.

FedEx posted earnings this morning that disappointed but since they warned two weeks ago it was not really a surprise. However, they again warned on 2013 earnings saying the global economy was worsening. FedEx said customers were using slower ground transportation because products were not flying off the shelves. Customers could wait a couple extra days to get a delivery of replacement inventory. Spoiler alert! If the millions of FedEx customers are no longer in a hurry to receive their shipments then inventory is probably piling up throughout the supply chain. I would expect this inventory buildup to spoil Q3 earnings for lot of reports when companies post earnings in October.

FedEx said international package volume declined another -2%. He said the continuing drop in package volume was declining faster than FedEx was able to reduce costs to match demand levels. They are going to increase shipping rates by 3.9% for domestic import and export services starting Jan 7th.

They reported earnings of $1.45, which was slightly above the reduced guidance of $1.37-$1.43 they gave just two weeks ago. They reduced guidance again for Q3 to $1.30-$1.45 and well below analyst estimates of $1.67. They lowered full year estimates again to $6.20-$6.60, down from the previously reduced forecast of $6.90-$7.40.

FedEx shares fell -2.73 and their warnings caused a negative open for the Dow and drove the Dow Transports to a -57 point loss.

FedEx Chart

Dow Transports Chart

The FedEx "global weakness increasing" excuse produced negative market sentiment but the opening dip was quickly bought and I think that was bullish for future market sentiment.

The weekly chain store sales report, not a heavily watched indicator, declined -2.5% for last week and that big of a decline is a cause for concern if it continues.

Helping to overcome the negative market sentiment at the open was the NAHB Housing Market Index for September. The headline number rose to 40 and the highest level since June 2006 and the fifth consecutive gain. It was 14 this time last year and 37 last month. The expectations for future sales component rose +9 points to 51 and the highest level since the recession. It was 17 last September. The factors constraining the market continue to be high unemployment, lack of equity and lack of credit to conform to the new standards.

I was talking to a realtor in the Denver area today and he said there are 10,000 realtors and they are averaging 5,000 houses a month. Unfortunately inventory at the end of August was only 10,000 homes in the metro area and homes coming to market have dried up. Everyone is positioning for a spring listing to avoid moving in the winter. That means they will be out of inventory of sale able homes in the next six weeks or so since some of those 10,000 will never sell because of price or condition. Home prices are going up in Denver and it is a seller's market.

NAHB Housing Market Index

The economic calendar for the rest of the week is highlighted by the Philly Fed Manufacturing Survey on Thursday. This is the proxy for the national ISM that will be released two weeks later. The Philly number has been in contraction territory for four consecutive months.

I am not sure how another negative number would play out since the NY Empire Manufacturing Survey on Monday fell to -10.4 and the biggest drop since November 2010. This is the second consecutive month of declines and it is worsening. New orders fell from -5.5 to -14.0 and back orders from -10.5 to -14.9.

This was a very negative report and it was ignored since investors are still basking in the glow of QE3. The Empire report is not as important as the Philly Fed but it was still ignored.

Economic Calendar

Volume was low at 5.9 billion shares and only slightly above the 5.5 billion on Monday. It was 3:2 decliners over advancers and that was better than the 3:1 ratio on Monday. Like I said earlier it was a very low volatility day and there was no news. There was nothing to stimulate trading in either direction and the NAHB report offset the FedEx warning.

Apple (AAPL) closed at a new high at $702 with a miniscule gain of +$2. Reports from the various service providers showed record sales. Apple said they sold two million phones in the first 24 hours. AT&T said it was seeing the fastest sales on record. Verizon and AT&T have pushed back expected delivery dates. AT&T says up to 21 days with phones not delivered until October. Verizon is also saying early October. Apple will begin releasing the iPhone in 22 additional countries on Sept 28th. The goal is to have it in 100 countries by year end. Q4 is going to be an explosive quarter for Apple and earnings are going to be off the scale.

Apple shares have failed to decline after the announcement and those looking for the customary dip as a buying opportunity have been disappointed.

Apple Chart

F5 Networks (FFIV) rallied +4% and that was actually well off its highs. The gains yesterday and today came from news that Cisco is backing away from a segment of the networking market known as ACE load-balancing products. The three day rally broke above resistance at $105 to a four month high.

F5 Networks Chart

SalesForce.com (CRM) gave back a little ground today after announcing yesterday that registrations for the 10th annual Dreamforce technology conference in San Francisco has exceeded 90,000 from 65 countries. That makes it the largest technology conference of all time and nearly double the 46,000 attendees in 2011. They have reserves 12,000 rooms. That should give you some idea how fast cloud computing is growing. Oracle was quick to remind that have requested 20,000 rooms for their show and expect attendees from 117 countries.

CRM Chart

Yahoo (YHOO) formerly announced it had sold a portion of its stake in Alibaba for $7.6 billion and CEO Marissa Meyer said Yahoo would add $3 billion to its already announced $646 million stock buyback. Yahoo will retain a 23% stake in Alibaba. The Chinese Internet company reserves the right to buy back half of Yahoo's remaining stake if Alibaba ever goes public. Yahoo paid $1 billion for the stake in Alibaba in 2005. Yahoo shares have traded sideways for the last year as CEOs changed and the news flow about Alibaba and various suitors for Yahoo became a dull topic. Shares rallied a whopping 23 cents on the news today. Yahoo has a $19 billion market cap so a $3.6 billion buyback is significant but what happens after that is over?

Yahoo Chart

Germany urged Internet users to stop using Microsoft's Internet Explorer browser. Yep, stick a fork in the Microsoft browser I think it is done. Germany issued the plea saying new bugs recently discovered in the browser allow hackers to take control of your PC without your knowledge. Stop me if you have heard this before. I know this sounds like an old problem but it is a continuing problem and new bugs just keep cropping up. Microsoft said it would have a fix out sometime in the next week. So how many PCs can hackers infect in a week? Whenever a new bug is discovered the hackers post the info to hacker websites and instantly thousands of would be hacker wannabes start developing malicious code. This particular bug allowed hackers to install the "Nitro" trojan that attempts to gain entry to websites of defense contractors and manufacturers of defense products. This could be another country sponsored worm commonly originated from China.

Google Chrome, Opera, Firefox and Safari are gaining ground on IE but IE still has the biggest market share. Google said today that Google+, a rival for Facebook, now has more than 100 million active users. Google also announced it has acquired NIK Software. They produce state of the art digital editing software. Google shares rallied +8 to close at $718 and a new high.

Google Chart

Oil prices declined for the second day to close just above support at $95. The market was nervous after the big intraday dip on Monday but it was a nonevent. Monday was the expiration of options and somebody dumped a major position 1:50 that cascaded the stop losses in a very thin market. It was holiday volume in the futures markets but the -$4 drop in about 15 minutes saw 20,000 contract trade compared to about 350 in the period immediately preceding.

One energy trader theorized a large fund had sold expiring puts on the way up given the hype the prior week. When oil began to fade early Monday afternoon that put them in danger of being put if they did not exit at the close. When they pulled the trigger to exit the trade it caused a sharp dip in prices that immediately triggered thousands of stop losses held by other traders and the result was a cascade failure in a thin market. Fortunately opinions are like noses, everybody has one. Another reason given was a rumor of an impending announcement by the White House of a release from the Strategic Petroleum Reserve. The White House denied it but said the option was still on the table.

Prices did not rebound much from Monday's low and then headed back in that direction at Tuesday's close. WTI lost -$1.16 to close right at the lows for the day and Brent lost -2.15 to close just above support at $111.

Inventories on Wednesday are expected to show a big bounce as a result of production resuming after Isaac and the shipping lanes returning to normal traffic and tankers lining up to offload last week.

WTI Crude Chart

Brent Crude Chart

The dollar rebounded for the second day thanks to new worries over a Spanish bailout and the associated decline in the euro. This rebound is temporary. Gold prices rose only a couple dollars to $1771.20 but that was well off the low of $1753. Silver closed with a small gain at $34.73.

The lack of movement in the markets today was mildly bullish. The bad news on the worsening global economy before the open could have kicked off a significant bout of profit taking but didn't. The S&P traded in a very narrow 5 point range with solid support at 1456. Nobody was selling in quantity and there was a solid bid under the market. They were not chasing prices higher but they were content to soak up anything anyone wanted to sell. Starting at 2:PM there was a barely discernable trend of higher lows for the rest of the day.

That goes along with my theory that buyers are hoping for a dip to buy before they eventually throw caution to the wind because fund managers must have their cash invested before quarter end. As long as there is no earth shaking headline to shake these buyers up then we should begin to see an upward tick in the days ahead.

Support today was 1456 and initial resistance 1461 with new high resistance starting at 1470.

S&P Chart - 15 Min

S&P Chart - Day

The Dow moved in a similar pattern to the S&P but the range was wider at 65 points and most of that came from the opening dip and rebound. After 11:00 it was dead quiet with a slight uptick late in the afternoon to close in the green.

Caterpillar (CAT) was the only stock to close with a gain of more than a dollar ($1.08) and most of the movements were less than 50 cents. The NAHB news helped to lift the Dow off the opening dip but nothing else seemed to affect trading. This was a day of consolidation of last week's gains and there is nothing important to say. Some days are just neutral and this was definitely a lackluster day.

Dow Chart - 15 Min

Dow Chart - Daily

The Nasdaq did its imitation of Rip Van Winkle and slept for the last two days. Support is 3170 and resistance 3180 and absolutely no volatility. The Nasdaq was even more lackluster than the Dow. The only point of note was the slight uptick after lunch to end on the highs for the day. Unless there is a headline to break us out of this range we could spend another day wandering sideways. Eventually time will run out on those who need to buy for quarter end.

Nasdaq Chart - 15 Min

Nasdaq Chart - Daily

The Russell has pulled back to prior resistance at 855 and is now using it as support. The minor decline today was due to minor weakness in banks, builders and energy stocks as traders took profits from the prior run. The Russell remains overbought and is at risk for a decent decline, the same as the other indexes, but without a severely negative headline the most likely path is higher into month end.

Russell Chart - Daily

Today could have been cancelled and nobody would have noticed. You can't really determine much about market direction other than the gains from last week are intact. Slight upticks in the major averages in the afternoon suggest investors are getting antsy and are about to give up on waiting for a decent dip.

The events in Europe are going to be our biggest threat for tomorrow. Spain is finally making noises like it will ask for a bailout "if the conditions are acceptable." The prime minister said if we can accept a bailout without new reforms and at acceptable rates we would look at it. The "no reforms" part of that sentence is wishful thinking. Pressure is building and bad loans in Spanish banks rose to a record 9.89% in July and lending fell -4.53%. In October Spain is facing 29 billion euros of maturing debt that will have to be paid and Spain cannot afford to sell new replacement bonds at a high rate of interest. Rates on Spanish 10-year paper rose over 6% again on Tuesday. That also assumes there would be willing buyers and that remains to be seen. If the markets believe that Spain is going to try and tough it out and not ask for aid the interest rates are going to rocket higher. Spain is in a box and the PM is just trying to make the best out of a bad situation and negotiate his best deal. While we wait the headlines could be market negative.

Enter passively, exit aggressively!

Jim Brown

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