A wave of what appears to be tax loss selling has gripped the market and the major indexes are suffering. However, the Nasdaq struggled back from a -57 point loss to close near positive territory thanks to the biotech sector.

Market Statistics

The Dow Transports are headed in the opposite direction from the Nasdaq. The transports lost -221 points despite oil prices touching a 7-year low intraday at $36.64. Earnings warnings from the railroads and the airlines are calling into question the rate of economic growth. Rail car loadings are declining according to CSX last week. Southwest Airlines (LUV) warned today that revenue per passenger mile would decline -1% in Q4 compared to prior forecasts for a +1% rise.

Further research found that on Monday Southwest cancelled 22 of 79 flights to Chicago that were scheduled to arrive after 6:PM. The reason given was fog but none of the other major airlines reported any problems. The airport claimed visibility was ten miles. Some analysts believe Southwest was cancelling flights with few passengers.

With terrorist worries causing passengers to rethink their travel plans and competition rising the price for travel is crashing. I bought tickets from Denver to Seattle this week for $89. Southwest recently dropped prices from Chicago to the West coast to just over $100. That is the lowest prices since the Great Recession. Allegiant (ALGT) has also warned on weaker earnings.

This suggests the traveling public is planning to fly less this holiday season. It could be terrorist worries or simply economic issues since average annual income is down about $4,000 over the last 7 years. Whatever the reason the Dow Transports are at four-month lows and apparently headed lower. This is weighing on the broader market.



The U.S. economics were not exciting. The hiring intentions for Q2 declined for the second consecutive quarter according to the Manpower Employment Survey. The net number of respondents planning on hiring in Q1 declined from 15% to 14%. That is down from 20% in Q3 over Q4. Those planning no changes totaled 72% with those planning to reduce employment at 6%.

The Job Openings and Labor Turnover Survey (JOLTS) showed a 3.6% openings rate in October, down from 3.7% in September. Job openings totaled 5,383,000 an 11% gain from the same period in 2013. This report is a lagging report for October and was ignored.

The NFIB Small Business Survey for November declined from 96.1 to 94.8 and a five-month low. Those respondents planning on increasing employment remained flat at 11%. Capital expenditure plans declined slightly from 26% to 25%. For the second month, nobody was planning on increasing inventories. Those expecting the economy to improve declined from -4 to -7. Sales forecasts declined from +4 to -1. This was not a good report but it was also ignored.

Depressing the market at the open was the trade data from China. Exports declined -6.8% and worse than the -5% analysts expected. Imports declined -8.7% but better than expected. Imports have now been done for 13 consecutive months and analysts were expecting a -12.6% decline. Imports declined -18.8% in October.

The calendar for Wednesday and Thursday is lackluster with nothing that should be market moving. Everyone will remain focused on the Fed rate decision next week.


Other big news out before the open was Morgan Stanley's (MS) announcement of a layoff of 1,200 workers. That is 2% of their global workforce and the layoffs were concentrated in fixed income, commodities and currency trading. The company will take a $150 million charge for the layoffs. The company said the trading environment in Q4 has been lower than expected and not much better than Q3. Fixed income trading revenue declined -42% in Q3. Fixed income revenue over the first nine-months was $3.75 billion compared to $6.31 billion revenue from equity trading. That was the most equity revenue of all the banks. Shares declined -2% on the news.


UK miner Anglo American beat Morgan Stanley in the layoff department. Anglo American announced they were laying off 85,000 workers and reducing their total workforce to 50,000. They are also planning on selling off major chunks of their business as a result of the crash in commodity prices. Iron ore prices have declined from a peak near $200 a ton in 2011 to $39.60 today. Copper prices have declined from $4.65 a pound in 2011 to $2 today. This is killing the mining sector with Rio Tinto (RIO) falling -8% today and BHP Billiton falling -4% to a ten-year low. Anglo American is not traded in the USA.



Chipotle Mexican Grill (CMG) took another hit today after 80 Boston College students became sick after eating at a Chipotle. Early tests indicated this was an outbreak of norovirus, which causes severe vomiting and diarrhea. The company closed the single store temporarily and said it had no plans to close any other Boston locations.

The norovirus is highly contagious and can live on surfaces as well as foods. The virus is the largest blame for food borne disease outbreaks in the U.S. with more than 21 million cases annually. Hospitals, cruise ships and universities are prime breeding grounds where people work and live in close quarters. The Chipotle location was closed while they wait the result of the tests. Since the virus could have been transmitted in the school or dorms they do not know for sure how it originated or spread. Hundreds of students eat at this store daily so this could be a coincidence where blame was immediately put on Chipotle because of their recent E.Coli outbreaks. I doubt that but is is possible.

Chipotle had another norovirus outbreak in August that sickened over 100 customers at a location in Simi Valley California.

Shares declined -$31 at the open but improved to close down only $9.


Autozone (AZO) reported earnings of $8.29 that beat estimates for $8.20 and $7.27 in the year ago quarter. Revenue of $2.39 rose +5.6% and matched estimates. The company opened 22 stores in the U.S. during the quarter to bring its total to 5,163 of the 5,635 total stores globally. Shares rallied +6% or +$44.


Homebuilder Toll Brothers (TOL) reported earnings of 80 cents that rose +12.7% but missed estimates by 3 cents. Revenue rose +6.4% to $1.44 billion and beating estimates for $1.43 billion. Home deliveries rose +0.7% to 1,820 units. Signed contracts rose +29% to $1.25 billion with prices rising +15% to an average of $872,000. Order backlogs rose +10% to 4,064 homes. Shares fell -7% on the news despite the strong orders and sales.


Smith & Wesson (SWHC) reported earnings of 25 cents compared to estimates for 20 cents. Revenue of $143.2 million rose +32% and beat estimates for $139 million. The company said gun sales were soaring thanks to President Obama's push for gun control and the threat of U.S. terrorist attacks. On Black Friday alone a record of more than 185,000 background checks were conducted for people buying guns. Shares declined slightly after the earnings but they were up nearly 18% since the California shootings six days ago.


Dave & Busters (PLAY) reported earnings of 12 cents compared to estimates for 3 cents. Revenue of $193 million beat estimates for $185 million. Same store sales rose +8.8% compared to estimates for a 4.9% gain. The company guided higher for the full year. Shares rebounded to $42 in afterhours.


Krispy Kreme Doughnuts (KKD) reported earnings of 19 cents that was in line with estimates. Revenue of $129 million missed estimates for $133 million. However, same store sales rose 3.4% compared to +2.8% estimates. They guided higher for earnings in the 78-80 cent range for the full year compared to estimates for 78 cents. Shares were volatile in afterhours but closed with no material change.


Mastercard (MA) said it was increasing its dividend +19% to 19 cents. They also said they were adding $4 billion to their existing share buyback program with $786 million unspent. Even with the increase in the dividend their annual yield is still a paltry 0.77%. The dividend will be paid on Feb 16th to holders on Jan 8th. Shares gained about 50 cents in afterhours.


Bristol Myers Squibb (BMY) announced a 3% increase in their dividend to 38 cents. The dividend will be payable Feb 1st to holders on Jan 4th. The company expects the full year dividend to be $1.52. Shares did not move on the news.


CNBC broke the news that Yahoo (YHOO) had decided not to spin off its 384 million Alibaba shares. The actual announcement is expected to be made on Wednesday. It was also reported that the company was considering spinning off the core business in order to create value in the shares. The noncore business would essentially be the Alibaba shares. By splitting out the core in a tax-free spinoff the remaining business would continue to control the shares and trade in tandem with Alibaba. If a core split is announced it will probably take about a year to iron out all the details.

The problem with the spinoff of the BABA shares is the massive tax bill that could be incurred. A core spin should not incur any taxes. Shares rose $1 in afterhours.


Kinder Morgan (KMI) announced after the close they were slashing the dividend by 75% from 51 cents to 12.5 cents a quarter. In the first nine months of 2015 the partnership had paid out dividends of $1.48 and more than three times their reported earnings of 43 cents. This cut had been widely rumored and led to a steep decline in shares over recent weeks. The company said the cut was necessary to maintain its investment grade bond rating. KMI has $41 billion in debt and a market cap of only $35 billion. They need to maintain their credit rating to keep their interest rates low. They said they also needed to preserve cash for acquisitions in this time of real opportunity. Shares declined $1 in afterhours to give a prospective yield of 3.4% at the new stock price.

The company said business was good and cash flow was expected to increase 8% in 2016 with distributable cash flow around $5 billion. They paid $3.08 billion in dividends in 2014. Capital spending was $3 billion, which they raised with a share sale.


Steve Wynn said he bought more than 1 million shares of Wynn Resorts (WYNN) stock so far in December. He now owns or controls 11.07 million shares or roughly 10% of the outstanding shares. Wynn shares have been under substantial pressure because of the challenges in Macau. Steve has been known to buy shares at the lows and sell them at the highs and with the stock down from $249 in 2014 to $62 today, this is definitely a low. Shares rose 10% in afterhours.


Carl Icahn said he boosted his stake in Hertz (HTZ) from 11% to 14.3%. This is another attempt to buy low or in this case average down. Hertz shares have declined from $20 to $13 over the last month. Jana Partners said recently they cut their stake in Hertz by half to 4.8%. Unless something happens to Hertz soon this could be a loser for Icahn. I would avoid this stock. Car services Uber and Lyft are killing this sector.


Crude oil declined intraday to $36.64 and a post recession low. Without OPEC cutting production there is nothing to support oil prices long term. However, in the API inventory report tonight after the close they showed a -1.9 million barrel decline. With refiners raising their utilization to a three-month high of 94.5% last week I am not surprised there is a decline. Refiners are rebuilding supplies of refined products that shrank in Sept/Oct while they were in the Fall maintenance cycle. This utilization will slow once the winter blend fuels are replenished. Crude rebounded to $38 on the API report. The EIA report on Wednesday is the one that moves the market. If it shows a similar decline, we could see some short covering.


Markets

Most of the market damage was done at the open as stocks reacted to the negative trade news out of China. The Dow declined -245 at its lows but despite the recovery to close at -162 there was never any concentrated buying.

The S&P dipped to 2,052 at the open and quickly rebounded but the rebound was short lived. The second dip stopped at 2,060 and that remained support the rest of the day. The S&P closed at 2,063 and right below the 200-day average at 2,064.

The Dow and S&P have a series of lower highs and higher lows. It would take a close under 2,020 to make a lower low and break the uptrend from September but the market is looking a little shaky this week.

We would need a close over downtrend resistance at about 2,109 and then a confirmation close over 2,116 to really energize the bulls. This market appears to be in the throes of some serious tax loss selling and the lack of material rebounds either today or yesterday is troubling. The middle of December is known for declines due to tax loss selling so that is being blamed for the market weakness.


The Dow was handicapped by Exxon and Chevron as crude prices fell to seven-year lows. They rebounded late in the day but still remained at the bottom of the losers list. Goldman Sachs continues to be in a steep decline with another -$2.50 drop.

It was simply an ugly day for the Dow stocks as investors sold to either raise cash or offset gains elsewhere. The Dow has very pronounced downtrend resistance just below 17,900 and that will be the critical point once a rebound begins.

Support today was 17,500 with the dip last week to 17,425. Those are the critical levels if the selling continues.



The Nasdaq returned to positive territory late in the day after being down 57 points at the open. A late flurry of selling caused a close with a -3 point loss but traders should be happy. The majority of the gains came from a resurgence of biotech stocks with many posting really nice gains. The biotech index gained +1.8% for the day.

Apple announced a case for the iPhone with an extra battery attached for $99 but still finished negative. There is also a rumor that the second generation Watch will be announced in March with the first deliveries in April. Analysts believe Apple sold between 5 and 6 million of the first edition. There are also rumors about an iPhone 6c with longer battery life in the same time frame.

Without Apple leading the charge higher, it was remarkable that the Nasdaq 100 did finish in the green with a minor gain. Both tech indexes appear poised to make new highs if the market decides to move higher in late December.

The Nasdaq Composite has strong resistance at 5,160 and closed right at the lesser resistance at 5,100.




If the Russell 2000 is going to make a late December run, it needs to get started soon. The index declined to support at 1,150 and rebounded only slightly. I believe the market weakness has scared investors and they are afraid to buy the small caps. The strength in the Nasdaq big caps indicates fund managers are looking for end of December window dressing with high liquidity. However, if we could post a couple days of gains that liquidity fear could evaporate.


In my last couple of commentaries, I have cautioned that the market was risky and warned that we should be careful despite seasonal trends that suggest the market will recover before December was over. I recommended using the expected mid month weakness as a buying opportunity.

That weakness arrives earlier than expected and I am not yet suggesting we load up on longs. I think we could be near a bottom but I would like to actually see that bottom form before rushing into new positions.

Obviously, with the amount of shorts in the market we are rapidly approaching a monster short squeeze. If we wait for that squeeze, we could be left waiting on the sidelines. That is a chance we need to be willing to take. I have no problem with nibbling at certain big cap tech stocks given the performance today. Netflix would be my first choice. Amazon and Google are too expensive for me and Facebook needs to trade over $108 before I would be a buyer. This makes the QQQs the obvious choice for a speculative trade. With the Nasdaq 100 near a breakout to a new high that would be the least risky bet for the end of December.

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