The markets wandered aimlessly on light volume as prior gains were consolidated.
Today could have been a summer Friday with the low volume and the lack of headlines to move the market. The indexes spent most of the day in negative territory but they returned to the flat line at the close. The Dow squeezed out another new high on a +2 point gain. Volume was almost nonexistent and the Volatility Index ($VIX) dipped to close under 11 once again.
Those traders actually in the market were apparently taking profits from the prior week's gains but they did not appear to be in any hurry to jump back into the market. We are still in a buy the dip market until proven wrong.
The economic reports were slightly bullish but there were no market moving releases. The NFIB Small Business Optimism Index rose slightly from 95.2 to 96.6 in May to the highest level since September 2007. The internals in the survey were very mixed with several components still in contraction territory. I am surprised the headline number posted a gain.
This was the third consecutive monthly gain since the low of 91.4 in February. Respondents said credit was becoming easier to get and a net of 10% of businesses are planning on hiring more workers over the next several months. More than 15% said they were planning on raising wages and that was the largest number in six years. Respondents were evenly split on the direction of the economy over the next six months.
Since small companies create more than 80% of new jobs we need for these entrepreneurs to feel good about the future of the economy.
The Job Openings Labor Turnover Survey (JOLTS) showed a jump in job openings from 4.166 million to 4.455 million. Hires increased slightly from 4.706 to 4.708 million but separations also rose from 4.491 to 4.496 million. Quits also rose from 2.461 to 2.473 million. Layoffs increased from 1.638 to 1.651 million. What this shows us is that employees were more open to changing jobs and that suggests the job market is improving. This is a lagging report for April and it is normally ignored.
The Manpower Employment Outlook Survey for Q3 showed 18% of employers were expecting to add employees compared to 15% for Q2 and 10% for Q1. This was a positive report but is pretty generic and is just one more indicator that the economy is growing slowly.
The weekly chain store sales fell -2.8% after a +2.9% gain the prior week. That was simply a blip caused by the Memorial Day weekend sales. This report should be ignored.
Wholesale Trade inventories for April rose +1.1% and above the consensus for a +0.5% gain. Sales rose +1.3% and down slightly from the +1.6% rise in March. The stronger than expected rise in inventories is positive for the Q2 GDP.
There is nothing on the calendar for Wednesday that will move the market. The next material report is the Retail Sales for May on Thursday. Sales are expected to have risen from +0.1% in April to +0.6% in May. This could be a minor market mover if the number deviates significantly from expectations.
This was a VERY slow news day for stocks as well. If this is any indication of how the summer is going to shape up we are going to be asleep at our computers for most of the summer.
Amazon (AMZN) was making news after news broke that they were planning on launching a marketplace for local services to compete with Yelp (YELP) and Angie's List (ANGI). They will offer everything from clowns, redecorating services, yard work, remodeling, photographers, tutors, etc. They are going to test their concept in several major markets before rolling it out nationwide. This is similar to how they rolled out the Amazon Fresh grocery delivery service. The Amazon services effort will be backed by their "A-Z Guarantee" of satisfaction. That will separate the Amazon product from every other service currently in operation. Most are simply referral services and get their revenue from advertising the vendors. There is no real guarantee.
Amazon is well on its way to being everything for everybody and the next big money maker for them could be Amazon Payments to compete with PayPal. I am surprised they have not branched into this area yet. They recently announced the product and have been testing it on several third party websites. It will not be long before all retail websites will be asking how you want to pay and the options will be credit card, PayPal or Amazon Payments. With Amazon's more than 150 million customers and their broad retail reach is going to make them a serious competitor to Paypal.
Amazon shares rallied +$5 on the news.
While on the same topic of electronic payments we learned today that PayPal's President, David Marcus, is leaving PayPal to join Facebook (FB). That should give you some clue where Facebook is going with payments. One analyst speculated Facebook might make a run at buying Ebay where they could monetize Facebook's one billion users in Ebay sales and more importantly by integrating PayPal into Facebook. PayPal has 340 million users but Facebook has over one billion. Even if Zuckerberg did not want Ebay he could buy the company, split off PayPal and then spinoff Ebay again. The problem with that idea is the $61 billion market cap of Ebay. That would be a huge acquisition for Facebook with a market cap of $131 billion.
Now that he has the brains of PayPal inside Facebook he could also simply create a Facebook payment system. That would be a lot of work, involve a lot of hurdles and then have to overtake PayPal in the marketplace. He would have to pay more to go the PayPal route but the system is already in place worldwide and readily accepted. With Amazon announcing the payments push it makes it even more important for Facebook to acquire PayPal.
Facebook shares rallied +4.6% on the news and broke out of a consolidation range and resistance at $64. Ebay (EBAY) shares declined -2.7% and should continue lower.
On Friday Green Mountain (GMCR) rallied from $112 to $123 in only a few minutes late in the afternoon. After the spike there were numerous rumors trying to put a reason behind the spike. Nothing showed up in the headlines and the stock lost nearly all its gains on Monday.
Today Green Mountain announced a partnership with Subway to put the single serve brewers in thousands of Subway locations. By introducing the single serve brewers customers can have any kind of coffee they deserve that is brewed on demand especially for them. More than half of Subway stores have already adopted the Keurig K150 single serve brewer after Subway offered the Keurig option to franchisees last year. The agreement today will put the brewers in the remaining stores and create a high volume sales outlet for Green Mountain.
Shares spiked on the news today but not really to the extent of the spike on Friday. GMCR shares gained only $1 at the close after being up more than $3 intraday.
UBS downgraded Las Vegas Sands (LVS) because of the recent headlines about the UnionPay terminals and slowing VIP betting trends in Macau. The Macau Monetary Authority ordered jewelry stores and pawnshops to remove the UnionPay card terminals by July 1st. Some analysts believe the UnionPay card terminals provided as much as 30% of the cash for the mass market, low dollar gamblers. Also starting July 1st China will limit transit visas to 2-3 days, down from 7 days before. This should not impact the mass market players but VIP players tend to stay longer than 3 days. The visa change could further pressure revenue from VIP customers.
Receptos (RCPT) reported successful results from a trial for a multiple sclerosis drug. The results of the phase 2 trial met endpoint goals with statistical significance. The double blind test covered 258 patients across 77 sites in 13 countries. Patients experienced an 86% reduction in brain lesions compared to patients on placebos. Shares of RCPT spiked +37% on the news.
Apple (AAPL) shares made it through their second day of trading without falling prey to the normal post split depression. Volume has been relatively low at 62.8 million today and 75 million on Monday. I still believe that once the influx of new investors fades we will see shares move lower. There are simply too many new shares on the market and odds are good there will be significant profit taking once the stock split news fades.
Since Friday's gap open to 1,948 on the S&P the index has traded in a very narrow range to close at 1,950 today. The high for those three days was 1,955 and the low 1,945. Nobody is selling and nobody is buying. At least there is not enough pressure from either side to knock the S&P out of its pattern. There are no headlines that give the bulls a reason to push stocks higher and none to energize the sellers to push it lower.
Considering we are at historic highs after a big gain this is extended hang time at this level is bullish. We remain in a buy the dip market until proven wrong. The lack of volume is a problem. Only 5.1 billion shares were traded and that is the lowest in a week. Volume represents conviction in either direction. No volume means no conviction. This could mean the market is being held at this level by a lot of weak holders that could be shaken out by the arrival of a small amount of volatility.
Personally I believe there are a lot of investors that are now looking for a decent dip to buy where in the past they were looking for a price spike to sell. While new highs attract new money there are a significant amount of investors who would rather buy a dip than a new high.
The 1,950 level is acting like a price magnet despite not being material support or resistance. It is simply a round number that happens to be very close to the 1,957 average yearend estimates from most analysts. The next real resistance is in the 1,963-1,965 range with ultimate resistance at 2,000. If that target is hit I think we can count on some significant selling.
The S&P is overextended so consolidation and/or profit taking are always a possibility.
Like the S&P the Dow has moved in a very narrow 70 point range for the last three days. The 17,000 target is looming and could be reached any day. Other than being round number psychological resistance the number is not material. The next real resistance is around 17,200 but that would add another +250 points to the +600 points gained since May 20th. The index is already extended and adding another couple hundred points without a dip is going to be a challenge.
Initial support is now 16,900.
The Nasdaq 100 ($NDX) has found resistance at 3,800 and came to a dead stop at that level at the close. The NDX move from early May paused for consolidation at the 3,750 level for a couple days and it appears to be doing the same thing at 3,800. As long as Apple does not spoil the party a breakout could be imminent.
The Nasdaq composite has not changed much since Friday. The dead stop at 4,346 and the bottom of the new high resistance range is a pause for consolidation. Getting though that resistance could be a challenge and the index will need a fresh start. I like the fact that investors are not rushing to take profits at this resistance barrier. That means the bullish sentiment has not changed.
The Russell 2000 declined about -1% intraday but the dip was bought. The resistance at 1,180 is solid and it will take a new surge in bullish sentiment to push the index over that level. The Russell is over extended after a +5% gain in four days. Today was a pause to regroup. I would use today's low at 1,167 as a signal of increasing weakness. If that low were to break I think it would change the underlying sentiment and likely drag the other indexes lower.
The Dow Transports are really over extended and well above the historical support of the 100-day average. I scanned several of the component charts like UPS and FDX and they appear to be weakening. The airlines ad railroads are providing support but they can't lift the index higher by themselves.
As I said earlier I believe we are in "buy the dip" mode until proven wrong. The indexes are over extended but they could still move higher if the consolidation dips continue to be bought. There are no headlines on the horizon to push the market in either direction but the ones that count are never expected. We are headed into the summer doldrums season so try not to overload your accounts with longs. Summer corrections can be ugly. However, summer rallies are always unexpected and the short squeezes on low volume are always fun.
Enter passively, exit aggressively!
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