The major indexes traded flat for the week with the big cap indexes losing ground after Monday's new high.
The Dow made a new high on Monday but lost 24 points for the week. The S&P came ever so close to posting a gain with only a -0.18 point loss. The Nasdaq managed to stretch its winning streak to 8 consecutive weeks and something it has not done since 2010. Option expiration was lackluster with only 5.7 billion shares and the lowest volume I can remember for an expiration Friday in a very long time.
There were no economic reports to give the market direction. The only report was the Regional and State Employment for July and that was ignored. Nonfarm employment increased in only 15 states, declined in only one state, Kansas, and was flat in 34 states. South Dakota at 2.8% and New Hampshire at 2.9% had the lowest unemployment rates. Alaska at 6.7%, Nevada 6.5%, New Mexico 6.4% and Louisiana 6.3% had the highest unemployment.
The economic calendar for next week is headlined by the GDP revision on Friday and while the consensus estimate is for +2.6% the whisper numbers are down in the 1.1% range. The prior reading for Q2 was +1.2% at the end of July. There is a significant potential for another disappointment.
The Janet Yellen speech on Friday is widely expected to set the stage for another rate hike. The various Fed heads made the rounds last week and almost all were saying "September meeting is not off the table" or "expect another hike this year" or even "I could see 1-2 hikes in 2016." There were almost no sentiments for waiting until 2017 for the next move.
Strangely, the odds of a September rate hike based on the Fed funds futures did not move and remained at 18%. The December odds decreased from 55.1% to 53.5% despite the Fed comments. After Yellen's speech, we will monitor the change again next weekend. Yellen has been consistently dovish but in the face of the strong employment numbers, she may begin to move towards a hike but more than likely in December. The title of her speech is "The Federal Reserve's Monetary Policy Toolkit" but she is likely to give a clue as to policy direction. Her two closest allies at the Fed, William Dudley and John Williams, have both raised the possibility of a September hike.
The housing numbers could be market bullish but we are heading into the slow period on the calendar. Consumers wanting to move before school started would have probably purchased in June.
The other reports are not market movers.
There were very few earnings reporters on Friday. I am glad I was not short Foot Locker (FL). Apparently a lot of traders were. The company reported earnings of 94 cents compared to estimates for 91 cents. Revenue of $1.78 billion beat estimates for $1.76 billion. With mall traffic falling everywhere and struggles by Nike and Under Armour, many traders were expecting a weak quarter.
The company said the latest shoes from Stephen Curry and Kevin Durant helped boost sales in the basketball division. Foot Locker posted gains in running and classic footwear as well as apparel. The CEO said "the malls are far from dead." Same store sales rose 4.7% and well over estimates for 3.9% growth. The Sports Authority closing also helped by eliminating several hundred outlets for athletic shoes. Foot Locker saw sales rise 21% on the "red hot" Adidas brand. Shares of Foot Locker rose 11% on Friday to $68.50.
Deere & Company (DE) was another stock rocket on Friday after shares rallied 11% from a four-month low. Earnings expectations were very low. The company reported earnings of $1.55 compared to estimates for 94 cents, yes, 94 cents. Revenue of $5.86 billion missed estimates for $6.04 billion but shorts were crushed anyway. The company defied a global farm recession and actually raised the full year forecast. They raised guidance to $1.35 billion in net income from the prior $1.2 billion they had projected in May. They accomplished this with a 16% reduction in expenses. Deere has been on a major restructuring program since 2013 and it is clearly paying off. The company still predicted a 10% decline in equipment sales in 2016 compared to the 9% forecast from last quarter.
Just to prove how negative expectations are, S&P Global upgraded Deere from "strong sell" to just "sell" after the earnings. The analyst raised his price target from $70 to $80 and the stock closed over $87.
Teen clothing retailer Buckle Inc (BKE) reported earnings of 32 cents that missed estimates for 33 cents. Revenue of $212.2 million matched estimates. Shares rallied 5% despite a -10.8% decline in same store sales. Overall sales have fallen -10.2% for the first six months of 2016.
America's Car-Mart (CRMT) reported earnings of 87 cents on revenue of $145.8 million. Analysts were expecting 51 cents and $158.6 million in revenue. The company killed it on earnings but missed by a mile on revenue. Unit sales declined -2.3% from 12,244 to 11,957 vehicles. The average retail sales price rose 4.3% or +$428 to $10,393. The gross profit margin was 41.8% and that should give you a clue how much room a used car dealer has in his prices. However, since they finance a lot of the cars they sell, the allowance for credit losses rose to 25% of finance receivables. That means one-fourth of the cars they sold, they expect to repossess. I guess as long as you can continue selling them again for a 41.8% profit that is a good business.
Toro Co. (TTC) reported earnings of $1.00 compared to estimates for 99 cents. Revenue of $601 million missed estimates for $623 million as both the professional and residential segments missed their sales goals. The company narrowed full year guidance from $3.90-$4.00 to $3.95-$4.00. The company blamed the slow sales on "challenging weather conditions" in some areas. Shares closed at a new high after a 4% gain. Not bad for only a penny beat and big miss on revenue.
DeVry Education (DV) reported earnings of 65 cents that rose +10.8% and beat estimates for 61 cents. Revenue of $472 million also beat estimates for $463 million. Revenue declined -0.3% and that was much better than company guidance for a 2-3% decline.
Shares were up sharply but I am missing the reason. For the July 2016 session in the business, technology and management segment, total enrollment declined -22.6% and new enrollment of undergraduate students fell -26.2%. Total enrollment for graduate courses fell -19.4%. However, enrollment in the medical and healthcare segment, total enrollment rose 18.9% with new enrollment rising 13.4%. For the full year, revenues are expected to be flat.
The earnings calendar for next week is very light but there are some big names. Best Buy and Toll Brothers headline on Tuesday followed by Ctrip.com and Hewlett Packard on Wednesday. For all practical purposes, the Q2 cycle is over once Cisco reported last week but HPQ could surprise us.
Shopify Inc (SHOP) priced a secondary of five million shares at $38.25 for net proceeds of $191.25 million. They are going to use the proceeds for general corporate purposes and to expand their business model. Credit Suisse reinstated coverage with an outperform rating and $46 price target. Credit Suisse said the funds would increase flexibility in funding future growth strategies. Shares rose 5% on the news.
Restoration Hardware (RH) was upgraded from neutral to "conviction buy" at Goldman Sachs. That is a heck of a jump skipping right over buy. They raised the price target to $40 and shares were trading at $31 before the upgrade. The analyst said RH is operating a "potent franchise with low current expectations, idiosyncratic business drivers, and, we believe, two ways to create value." They expect the retailer to recover from its current weakness in Q4. The company will mail new catalogs this fall, the first since the spring of 2015. They will implement a new pricing scheme. The high demand and always out of stock, "RH Modern" offerings are expected to reach 90% inventory status and the line will finally be in all the stores by the holidays. This means Q4 earnings should be strong. Shares rallied 11% on the news.
Google (GOOGL), now named Alphabet, went public at $85 a share on August 19th, 2004. Friday was their 12th anniversary as a public company. Shares are up +1,779% since the $1.7 billion IPO. That compared to the $16 billion Facebook IPO in 2012. Google split their stock 2:1 in 2012 with the new Class C shares having no voting rights and trading under the symbol GOOG.
Google's market cap of $543 billion is just slightly less than Apple at $588 billion. Revenue has risen more than 20 times since the $3.2 billion when they went public to the $75 billion in 2015. Profits have exploded as well from $400 million in 2004 to $16.3 billion in 2015.
They need to split the stock again if they want the common retail investor to participate. Shares have been stuck at the $800 level for most of the last year. Normal retail investors are not paying $8,000 for 10 shares. There are far better opportunities in the market for that amount of money. Google is a good company but they are old news. A lot of their moon shot endeavors fell flat and many of their previously announced projects were never completed. They need a new headline to rekindle excitement.
Crude prices had an outstanding week with the black gold rising 9% to $48.57. Crude is now up $9 since the $39 low on August 3rd. Analysts appear to be evenly split between the going to $60 and the going to $40 crowd. An Oppenheimer analyst said once oil closes over $50 a barrel again the sky is the limit with a projection of $63 in 2017. He blamed a reversal on the dollar to a two-month low and the now constant chatter about a potential production freeze by OPEC.
John Killduff, an analyst at Again Capital, said fundamentals are going to get worse before they get better. "We are probably going to touch $50 to ring the bell but then head back down to at least $40 or even into the $30s." Killduff said the OPEC chatter is just that, hopeful chatter designed to lift prices artificially in a seasonal period of low demand and high production. "Saudi Arabia is not serious about taking action" and many OPEC producers are working to increase production not freeze it. He said the Saudi Energy Minister's comment last week that the kingdom will discuss coordinating action with other producers was "perfectly well-timed" to impact near record short interest heading into a seasonally weak period for prices. Saudi produced a record 10.7 million bpd in July and said they would hit a new record in August. Oil from northern Iraq began to flow again after a months-long outage. The EIA reported this week that U.S. production jumped +160,000 bpd last week to 8.6 million bpd and the highest level since June 24th.
Active oil rigs have risen +76 to 406 since the low of 330 on June 24th. That is an average of about 10 rigs a week but that rate has accelerated over the last four weeks to overweight the recent gains. If oil prices move over $50 we could see dozens of rigs a week go back to work. Most of the reactivated rigs are working on drilled but not completed wells that can quickly be completed and put into production.
The Nasdaq stretched its winning streak to 8 consecutive weeks and something it has not done since 2010. It was close with the Nasdaq only gaining +5 points for the week but it was enough to keep the streak alive.
The semiconductors continued to provide support with a 2.2% gain for the week and a new closing high. The biotech sector lost ground for the second week and probably kept the Nasdaq from even larger gains.
The Nasdaq big cap stocks are weakening. Apple (AAPL), Intel (INTC) and Netflix (NFLX) managed to hold their gains and move sideways but Amazon (AMZN), Google (GOOGL), Microsoft (MSFT) and others have started to lose momentum and drift lower. If that drift contaminates those stocks struggling to maintain their recent gains then the Nasdaq could lose traction and end its winning streak.
However, the index is currently holding just below the recent high at 5,262 and the intraday dip to 5,200 on Wednesday was instantly bought. The support at 5,200 appears to be strong and there is a slight upward bias to the trend with marginally higher intraday highs towards the end of the week.
Regardless of how much investors want the Nasdaq to continue higher, the two-month rally is very unsupported and subject to some serious profit taking at any time. The saving grace is that the index has been consolidating above the 5,200 level for two weeks and prolonged consolidation is just as effective as a 3-5% decline for profit taking.
Converging resistance at 18,625 is keeping the Dow in check and the lack of any headlines for Dow stocks is becoming a drag on the index. All the Dow components have reported earnings and are now in the post earnings depression phase. The results on Friday would have been a lot worse but Nike (NKE) got a boost from the Foot Locker earnings and Caterpillar (CAT) saw a similar boost from the Deere earnings.
Despite the resistance at 18,625, the Dow refuses to decline. The dip to 18,500 at the open on Friday was instantly bought making it a higher low for the week. The dip to 18,469 on Wednesday was also instantly bought. Despite, these rebounds the last four days have seen a series of lower highs. They are buying the dips but they are not making any forward progress to higher levels.
The S&P is trading in a very narrow range roughly between 2175-2187. There was a temporary penetration to the upside on Monday and the downside on Wednesday but in both instances, the index returned to neutral territory almost immediately. When you compare the cluster of candles over the last two weeks to any other period on the chart you can quickly see the difference. The S&P has not gained or lost more than 1% in a single day since July 8th when it gained +1.53% and broke above 2,100. The index is very constrained and normally when this kind of tight range develops, the breakout/breakdown can be very strong.
Bulls have become very complacent and the bears have given up trying to force a correction. Eventually there will be a headline that snaps everyone out of their summer slumber and the results could be dramatic.
Until then we should continue watching those 2,175 and 2,187 levels for a violation.
The Russell 2000 has the same, slightly upward bias as the Nasdaq. It is barely perceptible while the support at 1,221 appears rock solid. Distant resistance is 1,250 and we could easily reach that level if another monster short squeeze appears. I do not know what could cause it but if it were easily identifiable then shorts would have already covered. It is the events that you do not expect that cause the biggest moves.
The Russell 2000 remains our sentiment indicator for the broader market. If the index moves over 1,240 and makes a new high, it could accelerate even higher. The tentative status quo between the buyers and sellers cold turn into a race higher if fund managers thought the market was going to run away from them.
Longer term the Russell is moving steadily higher with 1,244 the next resistance level. The daily chart is bullish and projects a slow climb to 1,250.
Investors are heading into a bad neighborhood with the six most volatile weeks of the year beginning on Monday. Nobody appears to be concerned and volume is very light. Friday's volume was only 5.7 billion shares and the lightest expiration Friday in recent memory.
The only trading strategy that has been working is the BTD strategy. That stands for buy the dip. Those dips are becoming more frequent but less shallow. In theory the market should not increase in volatility until after Labor Day but market theory has failed miserably in recent months. Volume between now and the holiday should continue to decline.
The fork in the road could be the Yellen speech next Friday. She could literally determine the market direction until the Fed meeting on September 21st. Will she continue her dovish ways or move to the dark side of the Fed with her closest allies? Personally, I think the entire rate hike thing is crazy because a 25 basis point hike would have no physical impact on the market. The impact is all psychological. The best strategy could be to sell the rumor and buy the news but it all depends on her guidance next Friday.
I prefer to refrain from being overly long and I recommend we keep some cash on hand to buy any material dip over the next several weeks.
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Bullish sentiment finally spiked last week after the indexes made new highs on Monday. Bullish sentiment rose +4.3% with nearly all coming from the neutral camp, which declined -3.9%. The bearish camp is still bearish with only a -0.4% decline. It is tough to convince those hardcore bears there is a rally in progress. In the end, they may be proven right.
Uber rules! Lyft is a competitor to Uber and life must be tough in second place. Lyft reportedly held talks with General Motors, Apple, Google, Amazon, Uber and Didi Chuxing in an effort to sell itself. GM is one of the largest investors in Lyft and discussions reached a serious level but no firm offer was ever made.
Lyft is not in danger of going out of business with $1.4 billion cash in the bank. However, it is proving very expensive to open new markets because of the dominance of Uber. Even Uber is struggling. They sold their Chinese subsidiary to Didi Chuxing and that stopped the bleeding of millions of dollars flowing into Chinese marketing. Didi is the dominant ride hailing service in China and Uber was pouring money into a sinkhole trying to compete. That sale upset a global alliance Lyft had with Didi to compete with Uber. Now Lyft is on the outside again, looking in.
Reportedly, Lyft was valued at more than $5.5 billion after the last round of investments by GM and others in January. In order to make those investors whole, the company would have to be sold at a premium to that valuation.
The ride share companies collect 20-25% of the fare and Lyft drivers are expected to generate more than $2 billion in fares in 2016. That suggests Lyft would generate revenue of $400-$500 million. After subtracting marketing costs, that number would be a lot lower. Also, until recently Lyft has been paying a signing bonus for drivers of $1,250 after the first 50 rides. In highly competitive areas, they even forego their 25% commission on some rides in order to keep drivers. Analysts claim Lyft is not profitable despite the $1.4 billion of cash in the bank. How they are going to get to profitability is the key question. As a startup business they could easily spend more than $400 million a year on marketing trying to generate market share.
Other problems are growing. Both Uber and Lyft exited the Austin Texas market after the city passed an ordinance requiring all drivers to be finger printed and pass a comprehensive background check. The problem is that a lot of drivers are minorities and some are not in the states legally.
Other cities have charged fees, required stringent insurance rules and required the companies to be licensed. Some require limousine licenses.
Wingz, a San Francisco based startup backed by Salesforce.com CEO Mark Benioff, is now active in 12 major cities. They hand pick the drivers and provide a $1 million liability insurance policy. Fasten, a Boston based startup, is specializing on serving college towns. They claim 70% of first time users become repeat customers. There are multiple unregulated networks that use Twitter and Facebook to find rides and customers without paying anyone a commission. Arcade City in Austin has 39,000 members that use the unregulated network using hashtags. They pay with Paypal, Venmo, Square and cash.
Build a better mousetrap and the world will not beat a path to your door. In today's economy, everyone will copy it.
Michael Phelps is the most taxed Olympian in history. Each medal comes with a cash prize. Gold is worth $25,000, silver $15,000 and bronze $10,000. For his 28 total medals, he has won $640,000. They are also taxed on the weight of the medals. A gold medal is actually 98.8% silver and 1.2% gold plated and worth about $565. A silver medal is 100% silver and worth about $315. A bronze medal is 95% copper and 5% zinc and worth about $2.38. Phelps has incurred an additional tax of $13,887 based on the precious metal content in his medals.
Since Phelps has a lot of advertising endorsements, he is probably in the 39% tax bracket making his taxes on winnings of $257,631. "Normal" athletes without endorsements would be taxed about 15% on their winnings.
At Phelps 39% bracket, he would be taxed $9,900 per gold medal, $5,940 for a silver and $3,960 for a bronze. Of course, most athletes will deduct the cost of their training from their income. Swimmer Missy Franklin said she spent up to $100,000 a year preparing for the 2012 Olympics.
Texas GOP Representative Blake Farenthold re-introduced the TEAM Act (Tax Exemptions for American Medalists) to eliminate taxes on medalists but it was not yet passed. The original bill never received a full vote. It is expected to receive a vote later this year.
The SEC halted trade in NeuroMama Ltd (NERO) after it reached $65 on the over the counter market. The regulator said it had concerns including "potentially manipulative" transactions. The company claims it has a search engine based on neural technology, is in talks to license "heavy ion fusion" and sells a line of computing devices. The company had a market cap of about $35 billion when the stock was halted. That is larger than Twitter, American Airlines and Sprint. However, the average daily volume was only 418 shares.
Back in early 2014, the market cap was $4.73 billion with 630.1 million shares outstanding. The company has not filed any quarterly reports since January 2014. The SEC warned about the "accuracy and adequacy" of information on the officers of the company.
The Chairman, Steven Schwartzbard, said the trading halt was caused by short sellers. He said the company was planning on upgrading the listing to the Nasdaq to avoid the regulatory hassles on the OTC. Clearly, he is full of BS.
The SEC previously sued Schwartzbard in 1997 for orchestrating a securities fraud scheme involving boiler-room stock sale techniques. In 2007, he was sentenced to five years in prison after he defrauded investors out of $1.8 million regarding the proposed renovation of a Las Vegas Casino.
This is just another example of when things look too good to be true, they probably are. Source
If that was not enough to convince you this company is a scam, look at their "state of the art" website. NeuroMama.com
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