The Santa rally got off to a late start but fund managers kicked it into high gear with their window dressing moves. With tax loss selling over, retail investors were also in a buying mood.
On Monday, the Dow dipped -113 by late morning but recovered to lose only 24 points. That recovery primed the index for a good news short squeeze. After the rebound from Monday's lows, positive markets in China and Europe, a rally in oil and commodities overnight and some decent economic data, buyers were ready to go at the open today. The Dow gapped open nearly 200 points as shorts ran for cover on the bullish headlines.
The Case Shiller S&P Home Price Index for October showed prices rose +5.5% in the top 20 cities in the index. Nationally prices rose +5.17%. This was the fastest growth in more than a year.
Consumer Confidence for December spiked +6.5 points to 96.5, up from the 90.4 previously announced for November. However, the November number was revised higher to 92.6. The present conditions component rose from 110.9 to 115.3. The expectations component rose from 80.4 to 83.9.
In the details, the number of prospective auto buyers declined from 12.7 to 10.5. Homebuyers declined from 6.0 to 5.8 while appliance buyers rose from 49.5 to 51.5. According to analysts, the decline in buying plans was driven by the Fed rate hikes. A 25 basis point hike would have no real impact but it is the idea that the Fed is going to keep hiking rates that is depressing sentiment.
The headline number was helped by the constantly falling gasoline prices and the warm weather. Frigid winter weather typically weighs on consumer confidence. Warm weather and blue skies are uplifting for sentiment.
The trade deficit for November increased slightly from -$58.4 billion in October to -$60.5 billion. Consumer goods imports declined slightly from $181.7 billion to $181.5 billion. However, exports declined from $123.3 billion to $121.0 billion. Blame this on the strong dollar. Once we actually begin to export crude oil next year the deficit should decline.
The Texas Service Sector Outlook Survey for December declined from 3.6 to 3.3. The revenue component increased from 10.3 to 15.2 but the expectations for future activity component declined from 10.9 to 7.9. Employment improved slightly from 10.6 to 12.3 and hours worked improved from 1.5 to 6.6. Overall, it was a decent report but the activity levels have stagnated over the last five months because of further declines in the energy sector in Texas.
There are no reports remaining this week that can move the market other than the EIA Oil Inventories on Wednesday morning. Another big drop in inventories could cause oil prices and energy stocks to rise and lift the market. Conversely, a big build in inventory levels could weigh on the market.
The Dow rallied on help from multiple stocks today. DuPont (DD) gained +1.10 after outlining 1,700 job cuts stemming from its coming merger with Dow Chemical (DOW). These job cuts will be in Delaware, where the company has been based for more than 200 years. The workers will be given separation packages, career placement services and retraining allowances. DuPont was forced to make the news public during the holidays because of a December 31st deadline for warning of impending job changes. The State of Delaware has a notice requirement for pending layoffs.
The global restructuring plan is expected to cut costs by $700 million and a 10% cut in the global workforce, which means 5,400 jobs could be cut overall. The cuts will result in a $780 million pre-tax charge to earnings. The specialty products business will be based in Wilmington Delaware. The material science business will be based in Midland Michigan. The headquarters for the agriculture business is still unknown.
Pep Boys (PBY) spiked again as Carl Icahn sweetened his bid even more from $16.50 to $18.50 after Bridgestone raised their bid to $17 on Friday. Bridgestone had originally offered $15 and Pep Boys had agreed to the offer back in late October. Initially Icahn had decided not to bid for Pep Boys but then changed his mind in December. A bidding war followed and Icahn appears to be the winner. After the close today, Bridgestone said it would not counter the last Icahn bid. On Friday Bridgestone and Pep Boys amended their agreement to the new price of $17 and raised the breakup fee from $35 million to $39.5 million.
Qualcomm (QCOM) rallied $1.30 after the company said it signed two big licensing deals with Chinese telecom companies. Tianyu and Haier both signed 3G/4G patent license agreements. Qualcomm has had some problems in the past with patent deals to Chinese companies. Doing business in China that involves giving Chinese companies access to proprietary technology is a basket of snakes. Technology tends to leak away and royalties tend to be understated. Qualcomm has been fighting this problem since early 2014 and the smaller than expected royalty payments caused Qualcomm to disappoint on earnings multiple times. This has pressured QCOM shares to decline from $81 to $50.
Surely, Qualcomm has learned from its past experiences and the two new agreements are iron clad, as much as they can be in China. Qualcomm has a market cap of $76 billion and $21 billion in cash. They are currently in a $10 billion stock buyback program. In May, they raised $10 billion with a debt offering, their only long-term debt, to fund the stock buyback program rather than repatriate the $21 billion in cash from overseas and pay a huge tax bill. They are paying a dividend of $1.92 or 3.87% yield. I would be a buyer of QCOM at this level after those licensing deals.
Honeywell (HON) shares gained $1 after the company said it had completed the $5.1 billion acquisition of meter maker Elster. Elster was a division of British manufacturer Melrose Industries.
Dunkin Donuts (DNKN) and Madison square Garden (MSG) announced a multi-year marketing partnership naming Dunkin products the Baked Goods and Breakfast Sandwich of the New York Knicks, New York Rangers, New York Liberty and Madison Square Garden. Really? They must be hard up for endorsements. However, fans will now be able to enjoy Dunkin products from two locations on the Garden's concourse. The Dunkin brand will also be prominent at all MSG games and events with courtside and in-arena signage, spots on GardenVision along with custom web pages on Knicks.com and NYLiberty.com.
Apple (AAPL) shares rallied for a change after mobile analytics firm Flurry said Apple won the activation war from Dec 18th through Dec 25th with 49.1% of all mobile activations. Samsung was second at 19.8%, Nokia 2.0%, LG 1.7% and Xiaomi 1.5%. This was down from 51.3% in the same period in 2014 but Apple is still way ahead of its rivals. More than 27% of the activations were for the iPhone 6 Plus and 6S Plus. Android saw more than 50% of its activations in the plus sized category.
DigiTimes.com said iPhone shipments in Q4 will be 5% to 10% below original expectations. The news came from Taiwan based supply chain providers. The sources said factory shipments are in line with sales of 72-75 million units, compared to prior estimates for 76-78 million units. Shipments for Q1 have also been lowered to 52-56 million, down from 58-60 million in prior forecasts. That represents a decline of 12% to 15% from year ago levels. iPhone Sales Slowing
Factories in the supply chain have reduced overtime shifts since November and could lengthen the time off for the Lunar New Year holidays. Foxconn Electronics iPhone plant is already talking about plans to possibly extend the holidays.
Apple shares rallied $2 on the activation news and began to fade late in the afternoon when the DigiTimes story was reported. I would be shorting Apple on this bounce. There is likely to be a decent decline into earnings on January 27th.
Whole Foods Market (WFM) agreed to pay $500,000 to end an overcharging probe by New York City. Shares were up slightly earlier in the day but faded into the close. This is a slap on the wrist because $500K is nothing but pocket change to Whole Foods. The company said it agreed to the payment in order to put the problem behind them.
Whole Foods has a lot more to worry about than NYC. The major chains are killing them. Kroger, Safeway, Sprouts, Fresh market and Walmart are all offering fresh organic items at a fraction of Whole Foods prices. They are no longer the king of the organic market and their declining earnings are the proof. I believe the rebound to $35 is a new short opportunity on WFM.
Tesla (TSLA) shares rallied $8 after news broke they were looking to hire thousands over the next few years. Tesla has already grown from 900 in its infancy to more than 14,000 today but to build "millions and millions" of cars as Elon Musk is predicting and it will require a lot more people. They are planning on adding 4,500 in California alone and currently have 1,600 open positions. There is a bidding war in progress in California. Apple has hired more than 60 former Tesla employees and is reportedly offering a 60% salary bump plus $250,000 signing bonuses to Tesla employees. Meanwhile Tesla has hired more than 160 former Apple employees. Elon Musk said he wants to have his self-driving cars on the road before 2020.
Intel (INTC) said it completed the $16.7 billion acquisition of Altera (ALTR). The company said Altera is "a great first acquisition." That immediately put a bid under the rest of the semiconductor sector.
Lattice Semiconductor (LSCC) spiked +8% on the Altera completion. The CEO said Intel will probably use Altera to focus on chips related to the PC market and that could boost Lattice's total addressable communications market by $300-$400 million.
Crude prices rose $1 in regular trading to $37.81 but settled to $37.33 in afterhours after the API inventory report showed an unexpected gain of +2.9 million barrels. This is the normal inventory reduction period in December where refiners let their inventories decline to reduce their property taxes on December 31st. It is unusual for inventories to rise in this period when everyone is expecting a decline. The average decline for December is now only -1.7 million barrels compared to an average decline of -5.5 million. Prices are likely to fall further if the EIA report on Wednesday morning confirms the decline.
The short covering, window dressing and buying for 2016 succeeded in lifting the S&P back over 2,059 and into the green for 2015. The close at 2,078 should give the index enough of a cushion to survive the next two days until the end of the year.
Fund managers desperately want the markets to post a gain for 2015 even if it is just a few points. They need it for their advertising. They do not want investors reading the paper this weekend and seeing headlines about the market closing down for the year for the first time since 2008.
The Dow gained +193 points and put it in range of a positive year-end close at 17,824. That is 104 points above where we closed today and with a little bit of luck and some skillful market manipulation they should be able to push the Dow into the green as well.
The Nasdaq is already well into the green with an +8% gain for the year. Today's rally cemented that positive 2015 close. It would take a nuclear explosion to knock the Nasdaq back -320 points over the next two days to finish in the red.
The Nasdaq 100 is only 28 points away from a new historic closing high at 4,720. If the big cap techs can manage one more day of decent gains, a new high could change the complexion of the entire market.
The biotech index gained +1.6% today and helped power the Nasdaq and the Russell with its gains. The IBB is up +15% over the last three months alone despite a big drop in early December.
The S&P vaulted past resistance at 2,065 and squeaked past resistance at 2,075 by 3 points. The close at 2,078 is still well below major resistance at 2,105 and 2,116 so I seriously doubt we will be seeing a new high over the next two days. I would be thankful just to finish the year over 2,100. Support is now 2,060 and Monday's low at 2,045.
The Dow still has major downtrend resistance at 17,825 and exactly where it needs to be to close the year with a 2-point gain. This should make Thursday's market a nail biter unless we have a blowout of some sort on Wednesday. Historically the last two days of December are negative for big caps but the market has ignored all the seasonal trends this year.
Amazon, Priceline and Google were the big gainers but Apple's $2 gain contributed +8 points to the Nasdaq. The biotechs were the leaders with a capable assist by semiconductor stocks. Tech stocks are typically strong over the next several weeks so assuming there is no immediate crash when the calendar turns over to 2016 we should see a new high on the Nasdaq 100 in the near future. Whether it will stick or not is the real question.
Support on the Nasdaq Composite is 5,000 followed by 4,935. Resistance is firm at 5,160 and 5,231.
The Russell 2000 is doing its imitation of the "The Little Engine that Could" as it struggles against a big deficit from the early December decline. You can almost hear it saying, I think I can, I think I can, as it slowly edges higher.
With resistance at 1,165 and again at 1,200 the odds of a big move are slim. This is seasonally the best time of the year for the small caps but it appears managers are storing their money in the big caps this year in case they have to exit in a hurry in January.
With the goal of closing the markets in the green for the year, I would expect fund managers to continuing buying the stocks that have the most impact on the indexes. They are within reach on the Dow but the last two days of the month are typically negative as aggressive traders try to create short positions ahead of a January decline. Many investors are holding profitable positions and waiting to sell until January in order to delay paying taxes for another year. There is normally a block of traders that try to anticipate that move and jump in front by shorting stocks on the last day of December.
With seasonal trends failing this year we cannot count on that selling and we cannot count against it. If you do not have an urgent desire to own something over the next several days I would recommend waiting until January and see what direction the market takes when the calendar turns over. The first two days are typically bullish as fund managers put end of year retirement contributions to work so it will take more than a couple days for a direction to appear.
The last two January's have been negative but the prior three were strongly bullish. Let's hope the pendulum swings back into the bulls favor this January.
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