The major indexes declined in a whipsaw fashion as traders hedged their positions ahead of Thursday's events.

Market Statistics

The market opened lower but quickly rebounded only to be sold again. The second rebound had faded and the S&P was moving sideways when a news story broke at 1:10 that President Trump was planning on being on Twitter during the Comey testimony to rebut his comments in real time. The market instantly dipped but recovered an hour later. The rebound did not last and the closing sell off brought the markets back to their opening lows.


The Comey testimony is important because of the implications if he says the president tried to halt the investigation of Mike Flynn and his Russian ties. If he says the president was just trying to save the reputation of a good man and there was no pressure, the market should rally. If he says the president tried to intimidate him into halting the investigations, the market should crash. A NYT headline out today claims Comey told Atty General Session he did not want to meet with President Trump alone. Comey reportedly told Sessions he wanted the Justice Department to protect the FBI from White House intervention. This sounds like the president was applying pressure. This will be must see TV for the market.

The U.S. markets are likely to remain flat to down ahead of the Comey testimony. I seriously doubt anyone is going to be making big bets ahead of what could be a monumental problem for Trump if Comey turns hostile.

The ECB rate decision is not expected to have any impact on the U.S. markets but it still exists as a possible trouble point depending on what they say.

The UK election is on Thursday but the results will be very late because the polls do not close until 10:PM UK time and after our markets close. The impact from the election will be on Friday.

On the economic front, the only major report was the Job Openings and Labor Turnover Survey for April. Job openings rose 4.0% compared to 3.8% in March. The number of job openings rose to a cycle high at 6.044 million, up 7.1%. Hires declined from 5.304 million to 5.051 million. Separations declined from 5.198 million to 4.973 million. Quits declined from 3,138 to 3.027 million. Layoffs declined from 1.661 to 1.590 million. Note that ALL the components declined with the exception of job openings. The economy is creating jobs and workers with jobs are keeping them at a higher rate. It is good when the exit rates are low because it means workers and employers are satisfied. This report was for April so it was ignored.


On the earnings front, Retailer Conn's Inc (CONN) reported a loss of 5 cents that beat analyst estimates for a loss of 22 cents. Revenue of $355.8 million missed estimates for $358.7 million. On the surface, that was a decent earnings beat and the revenue miss was not that bad. However, same store sales fell -15.2% with furniture down -24.1% and mattress volume down -21.6%. Home office furniture and equipment declined -28.7%. The company said Q2 was not going to be any better with a 12% to 15% decline in same-store sales. I am shocked the decline in the stock was only 9%.


Retailer Fred's (FRED) reported a 6 cents loss which matched estimates. Revenue of $532.3 million fractionally missed estimates for $532.9 million. Same store sales fell -1.2% and that contained a -1.4% impact from the sale of discontinued inventory. Overall, it was a mediocre earnings report but a great report when compared to Conn's. Shares declined 12% on the news.


Canadian Solar (CSIQ) reported a loss of 10 cents compared to estimates for a loss of a penny. Revenue of $677 million far exceeded the estimate for $579.6 million. Total solar module shipments of 1,480 MW was well over guidance of 1,150-1,200 MW. Cash at the end of the quarter was $961.4 million and cash burn for the quarter was $55 million. Their portfolio of power plants in commercial operation was 1,156.5 MW with an estimated resale value of $1.6 billion. The earnings miss was overshadowed by the revenue beat and shares only declined 10 cents.


Apparel retailer G-III Apparel (GIII) reported a loss of 18 cents compared to estimates for a loss of 40 cents. Revenue of $529 million rose 16% and beat estimates for $498 million. The company said the money losing Donna Karan acquisition was turning the corner and should be profitable in the second half. The CEO said they "were closing and repurposing stores and enhancing store product offerings. All are expected to significantly reduce losses in our retail operations." Shares spiked 15% on the news.


HD Supply (HDS) reported earnings of 63 cents that missed estimates for 65 cents. Revenue of $1.87 billion beat estimates for $1.86 billion. Their GAAP earnings of 42 cents missed estimates for 66 cents. They guided for the current quarter for earnings of 60-65 cents and revenue in the range of $1.33-$1.37 billion. Analysts were expecting $2.1 billion and $1.05 per share. The company also said it was selling its Waterworks division to private equity firm Clayton, Dubilier and Rice for $2.5 billion. They plan on using $500 million for buybacks.


RV manufacturer Thor Industries (THO) reported blowout earnings of $2.11 compared to estimates for $1.87. Net income from operations rose 41.6%. Revenue of $2.02 billion rose 56.9% and beat estimates for $1.96 billion. Gross profits rose 45.5%. This was a monster report.

This suggests Winnebago (WGO) should also have strong earnings when they report on June 21st. (unconfirmed date).


Amabrella (AMBA) reported earnings of 39 cents that beat estimates for 36 cents. Revenue of $64.1 million beat estimates for $63.3 million. However, they guided for Q2 revenue of $69-$72 million and a decline in gross margins from 64.3% to 62.0%-63.5%. Analysts were expecting revenue of $72.3 million. Shares fell 6% in afterhours trading.


Dave and Busters (PLAY) reported earnings of 87 cents that beat estimates for 81 cents. Revenue of $204.1 million beat estimates for $299.6 million. They guided for full year earnings of $2.47 to $2.57 per share with revenue in the range of $1.16-$1.17 billion. Analysts were expecting $1.169 billion. Full year income guidance was $107-$111 million compared to prior guidance of $101-$105 million.


Dell remains the only major U.S. company on the earnings calendar for the rest of the week.


Tesla (TSLA) shares hit a new high at $359 intraday after Pacific Crest said shares could hit $439 with the delivery of the Model 3. First shipments are supposed to start in July and Musk confirmed that today. CEO Elon Musk asked shareholders to tweet him some questions for the shareholder meeting on Tuesday. One person tweeted "boxers or briefs" to which Musk replied, "Wearing anything at all is just a conspiracy by the capitalist running dogs of Big Underwear." Later he said "This is a metaphor for transparency. Also, (bleep) underwear." A shareholder noted the stock hit a record high after Musk said he went commando. Musk re-tweeted the post and did not deny it.

Tesla said they were restarting solar sales in Arizona after the state reinstated a policy forcing utility companies to pay homeowners at the full rate for power injected back into the grid. Eighteen months ago, they had changed that policy and solar sales died in Arizona, a state with a surplus of sunshine. Sales fell 32% in 2016.

At the shareholder meeting Musk said the initial Model 3 cars will only have two options, color and wheel size. This will allow for faster initial production. Also, the first cars will only come in 2-wheel drive. The 4-wheel drive versions will come later this year. Tesla plans to be making 5,000 Model 3s a week by the end of 2017 and 10,000 a week in 2018. Musk gave shareholders a lot more information on the electric semi truck to be revealed in September and a crossover called the Model Y they plan to deliver in 2019. Musk said major customers have been working with Tesla on the design of the truck and are urgently asking how many they can buy and how soon. The Model Y will be built in an entirely new factory. He said the 5.3 million sq foot Fremont will be too crowded building S, X and 3 models and Y will have to be built elsewhere. He expects Model Y demand to exceed that of the Model 3, which already has more than 400,000 orders.


Crude prices rose slightly as support at $47 appears to be holding. The API inventories showed a decline of 4.62 million barrels. However, gasoline inventories rose 4.1 million barrels and distillates 1.8 million barrels. That caused WTI prices to decline slightly in afterhours to $47.99. The EIA numbers on Wednesday are the ones that really count.

The EIA said it expected U.S. production to exceed 10 million bpd in 2018 and break the prior record set in 1970. At the same time, they reduced their forecast for oil prices for 2018 from $55.10 to $53.61 on average.


Markets

The markets today were simply the result of consolidation of the gains from the prior three weeks ahead of a potentially disastrous testimony on Thursday. There are significant market gains at risk. As of Friday's close, the S&P was up 88 points since the May 17th bottom at 2,352. That was nearly a 4% gain in just over two weeks. It would be very unusual if investors did not take some profits ahead of Thursday's events.

The S&P declined only 3 points on Monday and only six points today. Given the size of the gains that is minimal. The index closed at 2,432 and support should be 2,420. As long as that level holds, the rally is intact.


The Dow declined only slightly and closed right on prior resistance at 21,130. The decliners were the same stocks that had posted strong gains over the last several weeks. McDonalds had a long string of daily gains and new highs but has now declined two consecutive days. Boeing was setting new highs but has fallen sharply for two days. This is profit taking ahead of an event and it is actually only light selling.

If the Dow continues lower the next support is around 21,000 followed by 20,900, 20,600 and 20,400. Let's hope we do not see any levels that start with a 20.



The Nasdaq big caps weighed on the index with Amazon and Alphabet high up on the losers list. There were some big gainers offsetting those losers so the 20-point decline was not material.

The gain in WINS was crazy. That was a $20 stock three days ago and it rocketed higher today to $82 on 35 times its 5,000 share average daily volume on no news. Today's gain was a 107% increase.

The Nasdaq has no real support until 6,200 and remains overbought. If investors decide to take their sizeable gains in the FAANG stocks, we could see that 6,200 level very quickly. Resistance is 6,300.



The Russell 2000 small caps had a decent day. They rebounded off the morning lows and actually went positive in the afternoon before finishing the day with a minor loss. I am surprised the Russell is showing any strength since Friday is the day the first deletion list will be released. That could lead to another round of shorting by individual investors.


I would be surprised if the market posted any material gains on Wednesday. Volume should be light. Unless there are new headlines tonight to cause more uncertainty, the cautious traders should have exited by now. We could see some bargain hunting given the two days of declines.

Thursday could see some heightened volatility but any comments that do not suggest there was potential obstruction of justice, should be met with a new round of buying. As I said earlier, this will be must see TV.

Enter passively, exit aggressively!

Jim Brown

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