Retailers held up the market thanks to Dow components Home Depot and Walmart. The continued short squeeze from Monday began to fade at noon and the S&P fell back into negative territory after a +13 point intraday gain.

Market Statistics

Home Depot (HD) spiked +$5.34 to add about 40 Dow points. The index was helped by a $2 gain in Walmart and another +15 Dow points. Despite those 55 points of Dow gains, the index closed up only +6. Intraday the Dow peaked at +116 but news of Germany evacuating a soccer stadium because of a terrorist threat knocked the buyers out of the market.

Another weight on the Dow was heavy selling in GE at the close ahead of their stock swap for Synchrony Financial. GE completed its spinoff of Synchrony by giving 1.0505 shares of Synchrony (SYF) for every GE share owned. GE said only about 31% of GE shares had been tendered for the swap. Because the offer was oversubscribed, GE is only accepting a portion of the shares tendered. The final ratio will be announced on Nov 20th. The swap will reduce the number of GE shares outstanding by about 6.6%. That is equivalent to a $20 billion share buyback. There were 25 million shares of GE for sale at the close as a sell the news trade after riding the stock to a six-year high.

There was also a little bit of good news on the economic front. The Consumer Price Index for October rose +0.2% after falling a total of -0.3% in the prior two months. Energy prices actually rose +0.3% to lift the index after a -4.7% decline in September. That little bump in crude prices to $50 in early October lifted the CPI but with crude now near $40 it will be a drag on the CPI for November.

The core CPI, ex food and energy also rose +0.2% with the services component up +0.3%. On a trailing 12 month basis the headline CPI is up only +0.1% while the core CPI us up +1.9% with most of that gain from a +2.8% rise in services.

The strength in the dollar, the implosion in commodity prices and oil will keep inflation low in the months ahead but the Fed will likely ignore the number because of "transitory" impacts, to use their phrase.

Industrial production for October declined -0.2% after the same decline in September. The warmer than normal September and October caused a -2.5% decline in utility output and mining/energy declined -1.5%. The report was ignored since utility output is not a market moving metric.

On the negative side the NAHB Housing Market Index for November declined from 65 to 62 as current and future sales declined. Analysts expected a reading of 64. The buyer traffic component did increase slightly from 47 to 48 and closer to neutral at 50. Even with the -3 point decline the index is still near the highs for the year at 65.

There were $33.6 billion in net cash inflows into the U.S. in September. The majority came from private foreign investors. However, Belgium bought $25.1 billion in treasuries, Singapore $6.8 billion and Luxembourg $6.2 billion. Large sellers of U.S. debt were Japan $19.9 billion, China $12.5 billion and the U.K. $8.9 billion.

Internet E-Commerce sales rose to $87.5 billion in Q3 from $84.0 billion in Q2. Sales are on track to significantly exceed 2014-Q4 of $77.6 billion. If the current trend holds, we could see nearly $90 billion in sales in Q4. To put that in perspective the entire retail sector does about $630 billion in Q4. Internet sales have risen for 27 consecutive quarters.

The important events for Wednesday are led by the FOMC minutes at 2:PM. This normally produces some volatility and this is the last communication from the Fed before the December meeting where they are expected to hike rates. How they phrase their intent in the minutes will be of specific interest.

The new residential construction numbers for October will be released at 8:30. Estimates are for a decline from 1.206 million to 1.162 million. The market will ignore it because starts always decline in the fall.

Home Depot (HD) was the star of the day. The company reported earnings of $1.35, which beat estimates by 3 cents and was 20 cents above the $1.15 earned in the year ago quarter. Revenue increased +6.4% to $21.8 billion and matching estimates. Same store sales rose a spectacular +7.3% in the USA.

The CEO said, "During the quarter, we saw broad-based growth across our geographies and product categories, led by growth in transactions from both our DIY and Pro customers." HD expects full year 2015 sales growth of +5.7% with comps of +4.9%. The company guided for earnings per share at $5.36 and the upper end of its prior guidance. Home Depot has returned $35 billion to shareholders through dividends over the last five years. In Q4, they are planning on buying back another $2 billion in shares to bring the 2015 total to $7 billion.

I would be a buyer of Home Depot on any pullback. The stock is on the verge of a breakout to a new high and I would hope to see some post earnings depression over the next couple of days to give us an entry point. I sure wish I had bought it on Friday.

Walmart (WMT) posted earnings of $1.03 that beat estimates by a penny but warned that Q4 would be competitive and sales growth would only be about +1% after a +1.5% rise in U.S. comp store sales in Q3. Overall, global revenue declined -1.3% to $117.4 billion due to dollar headwinds and economic declines in China and Brazil. Traffic was up +1.7%.

The company blamed the lackluster sales on the tech industry saying there had not been many new and exciting products over the last couple of years. Innovation has been relatively dormant. Weak tech sales also impacted Sam's Club, which sells a lot of TVs and electronics. Walmart is expecting a surge in Star Wars related products that will help boost the overall revenue. With Walmart's push into organic products they are hurting stores like Kroger and Whole Foods and that is attracting cost conscious consumers looking for healthy food.

Shares rallied +$2 but that was after a $1 drop from the intraday highs. This looks like a good opportunity for a short entry.

Dicks Sporting Goods (DKS) reported earnings of 45 cents and missing estimates for 47 cents. Revenue increased +7.6% to $1.6 billion but that also missed estimates for $1.64 billion. Same store sales of +0.4% missed estimates for +1.9% by a wide margin. The company blamed it on warmer weather that kept people from buying winter apparel. Dicks warned that Q4 would be "highly promotional" and the effort would be to actively manage inventory levels and not be left with large amounts of back stock at the end of December.

Dicks shares declined -9.43% on the news and I would not be bargain hunting at this level. The long-term trend is down and the lack of execution suggests Q4 will not be positive.

The Dicks earnings miss was a blow to Under Armour (UA). The athletic wear company gets 14% of its sales from Dicks while Nike only gets 2% from the retailer. Dicks said inventory levels rose +13% in Q3 and they were working with vendors to reduce its exposure to slow selling merchandise by returning the product, cancelling orders and securing markdown allowances. Under Armour shares declined -6% on the news.

After the bell, Jack in the Box, parent of Qdoba Mexican Grill (JACK) reported earnings of 62 cents compared to estimates for 65 cents. Revenue of $354 million missed estimates for $358 million. Same store sales rose +6.2% and was the highlight of the report. Qdoba Mexican Grill same store sales rose +6.6%. Shares rose +$2.50 in afterhours.

Staples, Target, Lowe's, Green Mountain Coffee and are the highlights on the earnings calendar for Wednesday.

Early this morning the Justice Dept and Federal Trade Commission (FTC) said they would release the information on their long awaited investigation into vitamins and supplements and reveal both criminal and civil charges. The shares of GNC Holdings (GNC), Herbalife (HLF) and Vitamin Shoppe (VSI) plunged intraday on the potential for a negative headline. GNC fell from $31.50 to $22.64 or roughly -26% before the news was even released.

The actual event was anticlimatic since no public companies were charged or even mentioned. USPlabs, seller of Jack3d and six executives face criminal charges for the unlawful sale of nutritional supplements. The Justice Dept claimed USPlabs used a synthetic stimulant made in China to make Jack3d and OxyElite Pro but told retailers the supplements were manufactured from plant extracts. The indictment claimed numerous users suffered liver damage with some receiving liver transplants as a result of the supplements.

The Justice Dept said it also filed civil cases against five companies for similar reasons. The companies included Clifford Woods, which sold Taheebo Life Tea and Life Grow Plus. Viruxo, which sold a product of the same name used to rtreat herpes. Optimum Health, which sold DMSO Cream for a variety of conditions. The FTC filed lawsuits against Sunrise Nutraceuticals LLC, Health Nutrition Products and NPB Advertising alleging they sold or advertised deceptive or unproven workout or weight loss supplements.

Shares or GNC rebounded to close just under $30 in afterhours. Options volume in GNC was 35,000 contracts or 8 times normal. One trader bought 2,700 weekly calls at $30 that expire Friday. VSI and HLF both closed down for the day but should recover tomorrow since the press conference was not held until just before the market closed.

Copper, oil and all commodities continued their plunge on falling demand and the strong dollar. Copper closed at $2.10 per pound and the lowest level since 2009. The entire commodity complex is about to set a 40 year low as referenced by the $CRB. It closed today at 185.42. You have to go back to 2002 for a lower close at 183.52 and then 1999 at 182.95. Then you have to go way back to 1975 for a lower close at 175.90.

We only have to drop -2 points to be at 40-year lows and the majority of analysts are still recommending shorting commodities. I do not know how the Fed is going to rationalize raising rates in this environment. The dollar will surge and commodities will move even lower and further reducing inflation as they decline.

Crude oil declined to $40.79 with the loss of $1 ahead of Wednesday's inventory report. Oil is up slightly tonight after the API Inventory report after the close showed a surprising decline of -482,000 barrels. However, the API report rarely agrees with the EIA report due out in the morning. There can be millions of barrels difference between the two reports. Even if there is a decline, it is only temporary with nearly 40 tankers now waiting offshore in Houston for fog to clear so they can unload.


The rally turned short squeeze rolled for 43 points before it was turned back at resistance at 2,066. Analysts claimed the decline was due to the evacuation of a German soccer stadium after a bomb threat but I suspect it had more to do with the short squeeze running its course.

The headlines flowing constantly out of Europe are poisoning sentiment and the FOMC minutes on Wednesday are likely to spell out in no uncertain terms that a rate hike will occur in December.

The positive earnings from Home Depot and Walmart impacted the market because they are both Dow components. That early morning spike in the Dow helped to continue the squeeze from Monday. When Walmart began rolling over and GE came under pressure the rally began to fade. The German headline was just the straw that broke the rally's back.

At Monday's close 193 S&P stocks or 38.2% were down more than 20%. A total of 253 or 50.1% were down more than 15% and a whopping 68.5% were down more than 10%. That is hardly a bullish scenario. We are not going to make new highs with those internals.

The S&P has significant resistance at 2,085 and strong support at 2,023. That gives it a roughly 60-point range to wander for the rest of the week. At this point, I am leaning bearish because of the lack of positive catalysts and the constant stream of terrorism headlines. I hope I am wrong.

There were only three Dow gainers that counted. The rest of the index was negative or only fractionally positive. I mentioned in the weekend commentary that it would take a good short squeeze to rescue the Dow 30 from the funk it was in on Friday. That short squeeze came right when needed and caused a +230 point rally on Monday. However, even a 9-point gain in the top three stocks representing about +65 Dow points failed to get it much off zero on Tuesday. That is not very encouraging. Unless some other Dow stocks repeat that win on Wednesday, the outlook is questionable.

Resistance is 17,600 and support 17,200.

The Nasdaq tried to punch through resistance at 5,008 but failed at the close as the market faded. The index dipped to strong support on Monday just over 4,900 and rebounded on the short squeeze. Today's +1.39 gain was lethargic at best. There were no outstanding headlines on tech stocks to power the index higher with most of the names on the winners list making a rare appearance on that list. Netflix was the exception with another outstanding gain of +$6.30 after a +7.70 gain on Monday. I am strongly hostile at Netflix today after I was stopped out in Ultimate Investor on Friday's drop only to see a $14 rebound to a two month high.

I am neutral on the Nasdaq because the big caps helped power the early November high but they are noticeably absent so far this week, with the exception of Netflix.

Support remains 4888-4925 and resistance 5008-5022.

The Russell 2000 gave back -13 points from its intraday high at 1,166 to close at 1,153. That is significantly below last week's high at 1,200 and solid resistance. Small caps are supposed to be in favor at this point in November and they were the biggest loser today. This is not good for market sentiment. The 1,166 level is now critical resistance on any rebound and the 1,140 support from Monday is also critical. That is a 26-point range so breaking out on either side would be a directional commitment.

Historically this is supposed to be a bullish week along with next week. However, the constant terrorist headlines and the impending rate hike are probably going to play havoc with seasonal patterns. The market is starting to feel heavy after Monday's short squeeze was unable to ignite a fire under equities. The kindling burned out and there was no follow through. Volume was moderate at 7.45 billion shares so it looked like another distribution day. I am not recommending a dip buy at this point. If we did retest 2,023 on the S&P it may not hold next time.

Enter passively, exit aggressively!

Jim Brown

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