The Nasdaq indexes both made new highs but the Dow and S&P struggled to gain ground.

Market Statistics

The Dow spiked to 20,155 intraday and a new high. Unfortunately, sellers appeared almost immediately to knock the index back below 20,100 for the rest of the day. Both the Nasdaq indexes posted solid gains and closed at new highs. The S&P failed to even touch the critical resistance at 2,300 and gained only half a point for the day. The Russell 2000 lost another 6 points to be the biggest loser for the second consecutive day.

There is clear divergence between the indexes with the Nasdaq continuing to lead the markets higher while the other indexes are struggling just to hold their gains. Oil prices and the strong dollar weighed on the markets and that problem is not likely to go away soon.


The economic reports for the day were less than exciting. The CoreLogic Home Price Index for December showed a 7.2% rise year over year compared to 7.1% in November. That is the fastest gain since March 2014. The index has posted consecutive monthly gains for the last two years. The report was ignored.

The international trade deficit for December declined slightly from -$45.7 billion to -$44.3 billion. Analysts expected a deficit of $45 billion. The average has been about $42 billion over the last year with November's level the largest deficit for the year. Exports totaled $190.7 billion and imports $235.0 billion.

The Job Openings & Labor Turnover Survey (JOLTS) for December saw the job openings rate decline slightly from 3.7% to 3.6%. Job openings fell only slightly from 5,505 million to 5.501 million. Hires rose from 5,212 million to 5.252 million. Separations declined from 5.018 million to 4.968 million. Quits also declined from 3.077 to 2.979 million. Layoffs rose slightly from 1.619 to 1.635 million. This report was neutral for the market and it was ignored.

Consumer credit for December fell from $24.5 billion to $14.2 billion. That was well below the $20 billion analysts expected. The weak holiday shopping season is probably shown in these numbers. Consumers were not rushing out to spend more on their credit cards. The report was ignored.

The calendar for the rest of the week is also uninspiring. There are no market moving reports.


The earnings calendar is also lackluster. Tesla reports after the close on Wednesday and Twitter on Thursday, will be heavily watched. Humana, Yum and Whole Foods on Wednesday should also attract some headlines. The lackluster calendar this week and next should contribute to post earnings depression. The excitement is fading from the market and traders will be trimming positions and deciding what they are going to sell to raise money for taxes.


After the bell Dow component Disney (DIS) reported earnings of $1.55 compared to estimates for $1.49. However, revenue of $14.78 billion missed estimates for $15.26 billion. ESPN continued to be a thorn in their side with revenue from the cable segment at $6.23 billion and below estimates for $6.42 billion. Cable network income declined -11% to $864 million. Disney said this was due to lower advertising revenue on ESPN and higher programming costs. The lower advertising came from a lower number of impressions and a decrease in average viewership.

Studio income fell -17% to $842 million because of super strong comparisons from the Star Wars movie in the year ago quarter. The Force Awakens earned $936.7 million and is now the number one all-time domestically according to Box Office Mojo. Income from the parks segment rose 13% to $1.1 billion.

CEO Bob Iger said he was open to staying on past his scheduled retirement in 2018 because the business was going to a series of major transformations and they do not have anyone that is clearly defined as a possible successor. That was good news for investors but shares still declined in afterhours. Shares dipped to $105 but recovered to close at $108.60 after Iger said there is way too much pessimism about ESPN.


Buffalo Wild Wings (BWLD) saw their shares plunge in after hours on disappointing earnings. The company reported earnings of 87 cents compared to estimates for $1.27. That is correct, not a typo. Revenue of $494.2 million missed estimates for $515 million. The company guided for the full year for earnings of $5.60 to $6.00 per share. The CEO said the restaurant environment had been challenging and December was especially rough. She said store traffic worsened considerably in December. Same store sales fell -4% and analysts were expecting -1.7%. The company also saw a sharp increase in wing costs from $1.81 per pound to $1.99 in Q4. The company also said it was under pressure from activist investor Marcato capital Management, which owns 5.2%. The board is under pressure with two members stepping down and three new members added. Marcato nominated four additional members.


Gilead sciences (GILD) reported adjusted earnings of $2.70 compared to estimates for $2.43. Revenue of $7.32 billion beat estimates for $7.17 billion. Hep C drug sales were $3.2 billion, down 35% from the year ago period. Sales of Hep C drugs for all of 2016 were $14.8 billion and a 23% decline. The company guided for total revenue in 2017 of $22.5-$24.5 billion and analysts were expecting $28 billion. Guidance for Hep C sales was $7.5-$9.0 billion and analysts were looking for $12 billion.


Panera Bread (PNRA) reported earnings of $2.05 compared to estimates for $2.00. Revenue rose 5% to $727.1 million and met expectations. The company guided for the full year to income of $7.45 to $7.70 per share and analysts were expecting $7.67. Personally, with revenue just matching estimates and guidance below expectations, I would have expected the stock to decline. Shares rose $5 in afterhours.


YUM China (YUMC) reproted its first quarterly earnings as a separate company. They had earnings of 17 cents that beat estimates for 10 cents. Same store sales were flat after a 3% increase at KFC and a 7% drop at Pizza Hut. Analysts were only expecting a +0.1% increase overall so it was not much of a miss. Revenue was $1.978 billion. Yum China said they approved a $300 million stock buyback. Shares declined -2.4% on the news. YUM Brands reports earnings on Wednesday.


Akamai (AKAM) reported earnings of 72 cents that beat estimates for 58 cents. Revenue of $616.1 million beat estimates for $605.7 million. Performance and security solutions rose 17% to $367 million and cloud security revenue rose 41% to $102 million. Shares were very volatile in afterhours.


Zillow Group (ZG) reported earnings of 14 cents compared to estimates for 11 cents. Revenue rose 34% to $227.6 million compared to estimates for $222.3 million. Unique visitors rose 13% to 140 million. They guided for Q1 to revenue of $232-$237 million. Analysts were expecting $235.9 million. That produced a major drop in afterhours of nearly -10%.


Twilio (TWLO) reported breakeven earnings compared to estimates for a 5-cent loss. Revenue of $82 million beat estimates for $74.2 million. They guided for Q2 for a loss of 6-7 cents and revenue of $82-$84 million. Analysts were expecting a loss of 4 cents and $78.3 million. Shares initially dropped -3% but ended the session about breakeven.


Crude prices have declined about $3 since Monday's high at $54.13 on worries about oversupply. Numbers are starting to come in from the OPEC production cuts and they only achieved about half of the targeted cuts for January. Active rig counts are shooting up and inventories are rising.

The API weekly inventory report tonight showed oil in storage in the U.S. rose by 14.2 million barrels and more than five times what analysts expected. Gasoline rose by 2.9 million barrels and nearly three times expectations. For the first three weeks of 2017, inventories rose 21 million barrels. If the EIA report on Wednesday confirms the API gains that would put the January gains at close to 35 million barrels.

Gasoline prices are already falling because refiners are trying to push as much oil through the system into refined products as possible. Oil, distillates and gasoline inventories are already at multi-month highs.

The rising dollar is also putting pressure on prices for oil and other commodities. The dollar index has rebounded for the last three days and is back over the 100 level.




Markets

The markets tried to rally at the open but gave back most of their gains. The Nasdaq managed to make a new closing high but the other indexes were weak. The Dow spiked to 20,155 at the open but faded to close at 20,090. The resistance at 20,100 is strong.

The S&P failed to even touch the resistance at 2,300 and ended with only a half point gain at 2,292. The S&P is the index to watch with the 2,300 level the new Dow 20,000. If the S&P punches through 2,300 the rest of the indexes should follow it higher. Support is back at 2,275 and 2,268.


The Dow managed the new intraday high but the 20,100 level still has a grip on the index. Support is well back at 19,850. With Disney down a couple bucks after the close, there should not be a material impact to the Dow on Wednesday. IBM and Boeing were the major supporters for the Dow on Tuesday. IBM could continue higher but is currently testing new high resistance at $178.66, just 20 cents over today's close. Boeing gapped up $3.50 and faded to close up +$2.50. Shares also have new high resistance at $169 with the close at $166.50.

With oil prices down sharply tonight, Chevron and Exxon will probably be negative at the open and offset some bullishness. The Dow futures are down slightly tonight.



The Nasdaq Composite closed well off the intraday highs but it was enough to notch another new high at 5,674. That was 16 points off the intraday high. The Nasdaq 100 almost hit 5,200 intraday and closed at 5,185 and a new high. The big cap tech stocks are currently leading the market.

The Nasdaq 100 has strong uptrend resistance at 5,200 and a breakout there could be a powerful market motivator. The same resistance level on the Nasdaq Composite is 5,700. That means both indexes are facing a strong challenge to any continued gains.




The Russell 2000 remains the biggest loser with another decline today. However, there is decent support at 1340-1350 and as long as those levels hold, the big cap indexes could continue to gain. A break below 1,340 could spell real trouble for the overall market.


The S&P futures are down -3.25 and falling late Tuesday. There is still a lot of darkness before morning and anything can happen. We have seen double digit declines erased on some headline from overseas. The problem that concerns me is the post earnings depression phase. Expiration week in February and the week that follows have been weak in the past. With the big names already reported there is nothing to really draw in investors off the sidelines. The more analysts call for a correction the less those fence sitters will feel like buying the market highs. RBS was a big name on Monday warning of an impending correction.

Everybody has an opinion but not all opinions are accurate. I recommend we continue following the trend until it ends but be aware that the market does feel heavy and resistance is strong on the Dow and S&P. That means if we were to break out there could be some significant short covering and price chasing. Remember, there have been no serious sellers. We have seen shallow dips but buyers have been waiting.

With earnings news slowing, that means other news will take on a greater significance. That means political news, of which there is no shortage, could be a market driver.

Enter passively, exit aggressively!

Jim Brown

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