The major indexes came back from early losses to end the day only fractionally higher after events in Turkey overshadowed the positive GDP revision.

Market Statistics

Turkey shot down a Russian bomber in Turkish territory after warning it ten times to leave Turkish airspace. The warning was heard and recorded by other coalition forces. Two crewmen ejected and Russia sent a rescue helicopter to pick them up. The helicopter was destroyed by Syrian rebels and the pilot was killed. Syrian rebels also reported shooting at the Russian pilots as they floated to earth under their parachutes. At least one was killed.

Later Russia announced it had activated the Russian missile cruiser Moskva off the coast of Syria with orders to destroy any target that may pose a danger. Russian military contacts with Turkey were suspended. All future air operations against ground forces in Syria would be accompanied by Russian fighter jets.

Turkey called for an "extraordinary meeting" of NATO for Tuesday evening to discuss the shoot down and possible consequences. There are unconfirmed reports that Putin has ordered shooting down Turkish planes on the border and that Syria is going to start shooting at U.S. planes in Syrian airspace. Previously there was an unwritten agreement that Syria would not shoot at U.S. planes because they were attacking ISIS, which is also an enemy of Assad. I repeat, this is unconfirmed.

The events in Turkey caused a -17 point opening drop in the S&P to 2,070. By 11:AM traders begin buying the dip and the index rebounded to close up +2.55 at 2,089. The Dow dropped -112 points to 17,683 before rebounding to gain +19 at the close.

On the economic front, the GDP for Q3 was revised up from +1.49% growth to +2.08%. This was down from the +3.92% reading for Q2. Consumer spending at +2.05% and fixed investment at +0.54% provided the lift while inventories at -0.59% and exports at -0.22% provided the drag. Government spending added +0.29%. Corporate profits declined -3.19%.

The inventory lift was upgraded from a drag of -1.44% in the initial report. Inventory accumulation slowed dramatically late in the quarter as weak economics begin to weigh on sentiment.

This upgrade to GDP gives the Fed some cover for a December rate hike. They really do not pay a lot of attention to GDP with the emphasis on inflation and employment instead.


The Richmond Fed Manufacturing Survey for November declined from -1.0 to -3.0 and the third month in contraction territory. All the major components declined with backorders at -16 and the fourth month in decline. New orders fell back into contraction at -6. Employment was the only major component not in negative territory and it was zero.

This was not a good report and it shows manufacturing in the Richmond area is at its weakest point since 2012.

Manufacturing Components

Even worse, the Richmond Services number fell from 18 in October to -1 in November. That is a huge drop and only 1 of the seven retail components was positive. The retail wage index declined from 37 to 35.

However, hiring fell from -1 to -12, revenue from +20 to -12, inventories from +15 to -18, customer traffic from +36 to -3, big ticket sales from -3 to -25 and demand outlook fell from 10 to -21. Clearly, there was a huge shift in the services sector in November and that is a month when retail should have been accelerating rather than crashing.


Consumer Confidence for November declined from 99.1 to 90.4 and the second monthly decline. The high was 102.6 in September. This is the lowest level since September 2014 at 89. Consumers are becoming more pessimistic about economic conditions and I am sure the market drop in Sept/Oct was also a factor in dimming expectations.

The present conditions component declined from 114.6 to 108.1 and the expectations component declined -10 points from 88.7 to 78.6. Those that felt jobs were plentiful declined from 22.7% to 19.9%. Income expectations also declined. However, potential auto buyers increased from 9.8% to 12.4%. The new model year probably helped stimulate some buying interest. Potential homebuyers declined from 6.2% to 5.6% but appliance buyers increased from 47.4% to 51.5%.

Sinking confidence levels typically means consumers will tighten their wallets. That is a problem for retailers heading into the holiday shopping season.


There are a lot of numbers due out on Wednesday but none should be market moving. The oil inventories may turn out to be the most important if the inventory build jumps significantly, as I expect it will over the next couple of weeks. That could depress crude prices and the energy sector. The price of oil has had an unnatural impact on equities over the last couple of months.


The earnings calendar was lackluster today with Dollar Tree (DLTR) leading the pack of early morning reporters. The company reported earnings of 49 cents that missed earnings for 54 cents. However, revenue more than doubled to $4.95 billion and beat estimates for $4.84 billion. Shares rocketed higher despite the miss. The company said the earnings miss was related to its $8.5 billion acquisition of Dollar General. Same store sales rose +2.1%.

The company guided to full year earnings of $2.32 to $2.51 per share and well below estimates for $2.74. Revenue guidance rose to $15.5 billion and in line with analyst estimates.

I personally did not see the reason for the big jump in the stock price since they missed on earnings and guided lower on full year earnings.


Who knew Spam was such a hot commodity? Hormel Foods (HRL) reported earnings of 74 cents that beat estimates for 68 cents. Revenue of $2.4 billion missed estimates for $2.54 billion. However, the company raised guidance for the full year to earnings of $2.85 to $2.95 and analysts were expecting $2.83. Hormel also produces Dinty Moore stew, Hormel chili and owns organic meat producer Applegate. In what seems like a clever sales ploy from the maker of Spam, Applegate makes deli meats, hot dogs, bacon and sausage that do not contain antibiotics, hormones or artificial ingredients. Imagine an organic hotdog. Really?

Hormel has a chart that anyone would love and shares rose +3% today.


Tiffany (TIF) reported earnings of 70 cents compared to estimates for 75 cents. The company also warned that EPS would decline 5-10% this year and more than the prior forecast for "as much as 5%." Revenue declined -2.2% to $938.2 million and missing estimates for $971.3 million. The company said the impact of the strong dollar in the Americas reduced revenue by -6% while comparable sales rose +6% in Europe. Analysts were expecting +8.5% and +6% respectively. The company said tourism sales were lower because of the dollar's impact. Shares rose +3.6% on the report despite the earnings miss and lower guidance.

Signet Jewelers (SIG) also reported earnings of 33 cents compared to estimates for 39 cents. Shares of SIG declined -7.5% in early trading but rebounded to -4%.



Footwear retailer DSW Inc (DSW) reported earnings of 44 cents compared to lowered estimates for 44 cents after they warned in early November. Revenue of $665.5 million matched estimates. The company expects full year earnings of $1.40-$1.50 per share, down from prior estimates before the warning of $1.80-$1.90. Same store sales fell -3.9% compared to a rise of +2.6% in the year ago quarter. Shares rallied slightly despite the poor performance.


After the bell Hewlett Packard (HPQ) reported combined earnings as of October 31st. The split occurred on November 1st so the next earnings will be as individual companies. The company reported earnings of 93 cents that missed earnings of 97 cents. Revenue of $25.7 billion missed estimates for $26.36 billion. Revenue rose only +2% as a result of the strong dollar. In constant currency, sales would have risen +9% to roughly $27.3 billion, which would have beaten estimates. HPQ shares declined -7% in afterhours trading. HPE shares rose +40 cents.



The earnings cycle ends on Wednesday when Deere (DE) reports. There will be some stragglers in the days ahead but the majority of earnings are over.


The downing of the Russian plane caused oil prices to spike over $43 and lifted energy stocks. That is really what lifted the indexes into positive territory. Dow components Exxon and Chevron were the top gainers in the Dow producing about 20 Dow points and the Dow closed up only +19.

With Turkey giving Putin a bloody nose there is an even greater chance he will react aggressively and that could ratchet up geopolitical tensions. The increased bombing of oil pipelines, facilities and tanker trucks has made headlines and that is keeping a bid under crude. We have yet to see ISIS complete a successful attack on Saudi Arabian oil facilities and with the coalition striking ISIS oil operations we could easily see ISIS retaliate by striking back at Iraqi or Saudi facilities.

That $43 level is now resistance and without any new Syrian headlines on Wednesday, we could see prices begin to fade. We will also get the EIA inventory report on Wednesday that could show a big build in inventories.

The API inventory report after the close showed a 2.6 million barrel rise in inventories and a +1.9 million barrel rise in inventories at Cushing. The available storage at Cushing is about 70 million barrels and there are roughly 59 million barrels in storage after the API report. Cushing needs to keep about 10% of storage empty to facilitate the blending operations and maintain flexibility. Once Cushing rises to the point where they can no longer accept oil the price of WTI will decline sharply. Cushing is the delivery point for crude futures. The EIA numbers out in the morning are considered more accurate than the API numbers.


Markets

The markets opened lower on the Russian news and then rebounded back to the flat line. However, volume was a little heavier at 6.9 billion shares compared to Monday's 6.1 billion. The big opening drop on the S&P probably took out a lot of stop losses and closed those positions. Those hoping for a December rally bought the dip.

However, today's trading produced another lower high and a lower low on the S&P. That would normally suggest the rally is over but we have to take into account the calendar and the headlines. This week is a very low volume week and it will be even lower on Wednesday and Friday. The geopolitical headlines are keeping cautious traders on the sidelines and the rebound back to a small gain was actually a positive signal.

The overnight session could be dangerous tonight. If Putin exercises his Napoleon complex, he is only 5 foot 7, and takes aggressive action in Syria then all bets are off for the rest of the week. He hates to be seen as weak and I suspect there is a headline heading our way in the days ahead. He is not a leader that talks tough and fails to follow through.

Resistance is about 2,097 and initial support is 2,080 despite the headline drop to 2,070 intraday. Real resistance remains 2,016 and 2,132.


The Dow was lifted by the rebound in oil prices and calmer heads in the Middle East could remove that lift very easily. The last two days the Dow has topped out at 17,860 intraday and faded into the close. Today's close was 17,814. The Dow has the same lower high formation but it is not pronounced. I would like to think it is holding at the highs rather than failing at the highs but we do not have the answer yet.

We cannot make any rational projections from the charts in this low volume, low volatility market. We need to get past Thanksgiving and return to normal trading.

Resistance is 17,900 and support 17,700.



The Nasdaq is stuck at 5,100. It has closed between 5,102 and 5,104 for the last three days. The opening dip to 5,050 was quickly bought but it took all day to finally creep back to that solid resistance level.

I view this as positive because it refuses to decline. A material move over 5,100 could produce some short covering and push the Nasdaq closer to stronger resistance at 5,160.

The Nasdaq is currently our best hope for leading the indexes higher. As long as the big cap tech stocks continue to outperform the broader market could follow the Nasdaq higher.



However, the Russell 2000 is coming off the bench as a substitute hitter. The Russell rallied +8 today compared to only +0.33 for the Nasdaq. I said the big cap tech stocks were our best hope for leading the indexes higher but the Russell has suddenly caught fire and could eclipse the performance of the big caps. I am definitely not opposed to having two indexes competing for the lead.

The Russell has resistance at 1,194 and again at 1,200. Support is today's low at 1,173.


Our risk for the rest of the week is geopolitical and terror related. Negative headlines from the Middle East could definitely derail any market gains. A terror event in the U.S. would be even worse and bring back 9/11 style fears. With three million people planning on lining the streets of New York on Thursday for the Macy's parade that is a target rich environment for any ISIS cell ready to end their existence taking innocent lives. I pray nothing happens but the risk is extreme.

Enter passively, exit aggressively!

Jim Brown

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