The Dow traded to within 13 points of 20,000 but could not reach that target.
There was a decent amount of short covering at the open with Goldman Sachs spiking $4 to add about 30 points to the Dow. The Dow ETFs saw a huge spike in volume on what appeared to be traders trying to juice the Dow to that 20K level as shorts were forced to cover. The Dow 3X ETF saw a huge spike in volume right at the open and that caused the index to spike but the rally stalled by 10:AM. Another surge at the close was able to lift the Dow into the close but both efforts fell short.
Goldman Sachs rebounded +$4 after two days of declines as shorts were forced to cover. Goldman is now up 38% since the election or 67 points and has been responsible for more than 400 Dow points. The Dow is up 2,086 points since the election, which means Goldman has been responsible for 21% of the Dow's gains.
The Dow 20K topic was the only thing traders were focused on this morning. The only economic report was the State Personal Income for Q3. Incomes rose 1.1% nationwide compared to +1.2% in Q2 and +0.3% in Q1. The report was ignored.
The economic calendar for the rest of the week will also be ignored. Volume is declining sharply and it will continue to decline for the rest of the week as traders shutdown their PCs and head for the malls and holiday parties.
Darden Restaurants (DRI) reported earnings of 64 cents that beat estimates by a penny. Revenue of $1.64 billion missed estimates for $1.65 billion. They guided for the full year 2017 to earnings of $3.87-$3.97 per share. Same store sales growth was choppy. Olive Garden saw +2.6%, Longhorn Steakhouse +0.1%, Capital Grille +1.2%, Eddie V's +2.7%, Yard House +0.7%, Seasons 52 -0.3% and Bahama Breeze +2.6%. Shares spiked $2 on the news but faded in the afternoon to close negative. Darden had rallied 23% since the election. Given the choppy results, this looks like a potential short for January.
BlackBerry (BBRY) reported adjusted earnings of 2 cents, compared to expectations for a loss of a penny. However, revenue of $289 million missed estimates for $330 million. They guided slightly higher saying they now expect to post an adjusted profit for 2017 compared to prior expectations to breakeven to a 5 cent loss. CEO John Chen said, "We achieved significant milestones in Q3, delivering the highest gross margin in the company's history for the second consecutive quarter and continuing to transform our infrastructure and operations to support an enterprise software business." The company posted a record gross margin of 70% and 80% of gross revenue was recurring. Chen is transitioning the company from a hardware business to a software business. Shares spiked sharply on the earnings but faded to a loss by the close.
CarMax (KMX) reported earnings of 72 cents that beat estimates of 71 cents. Revenue of $3.7 billion rose 4.4% but missed estimates for $3.79 billion. Used vehicle revenues rose 6.2% with unit sales rising 9.1% to 156,789 vehicles. Same store sales rose 5.4%. During the quarter, the company opened six stores. In fiscal 2017, they plan on opening 15 stores and 13-18 in 2018. They repurchased 3.8 million shares and have $1.69 billion remaining under the current authorization. They had cash of $23.7 million at the end of the quarter.
Navistar (NAV) dropped more than $3 after reporting a loss of 42 cents on revenue of $2.06 billion compared to $2.59 billion in the year ago quarter. Analysts were expecting a loss of 24 cents and revenue of $2.18 billion. The company said weak demand for heavy-duty trucks hurt earnings and the industry conditions in the first half of 2017 would be challenging. Orders for Class 8 long haul 18-wheelers fell -46.5% in October. Shares fell -$3 at the open but the stock rebounded to close positive.
After the bell Dow component Nike (NKE) reported earnings of 50 cents compared to estimates for 43 cents. Revenue of $8.2 billion beat estimates for $8.09 billion. Revenues for the Nike brand were up 8% on a constant currency basis. The Converse brand saw revenues rise 5%. Nike repurchased 17 million shares during the quarter for roughly $900 million. That is part of a four-year $12 billion authorization. Only $3.1 billion has been spent. Cash on hand at the end of the quarter was $5.9 billion. Nike shares rallied $1.50 in afterhours. That would equate to about 10 Dow points.
Nike's sales growth in the U.S. continue to decline as Under Armour and Adidas gain market share. U.S. sales rose only 3% while sales in China rose 17% with strong sales in Western Europe as well.
FedEx (FDX) reported earnings of $2.80 compared to estimates for $2.90. Revenue of $14.93 billion rose 19% but barely beat estimates of $14.91 billion. The company lowered its outlook for 2017 from $11.85-$12.35 to $10.95-$11.45. Analysts were expecting $12.15. FedEx said shipping volumes were 10% higher than Q4-2015. The missed earnings were due to increased costs in building out extra capacity to handle the volume surges. The expansions will add capacity and make sure they can process the expected Q4 volume in 2017. The CEO said the Polar Vortex that hit the U.S. with snow, ice and very cold temperatures over the last week was hampering holiday deliveries. Shares fell $7 in afterhours.
Guggenheim and Nomura both initiated coverage of Square (SQ) with a buy rating. Nomura has a price target of $18, Guggenheim $16 and Needham initiated last week with a $17 target. Despite the upgrades, the stock only gained 12 cents. That is hardly a vote of confidence by investors.
Drexel Hamilton initiated coverage on SalesForce.com (CRM) with a buy rating and $100 price target. The analyst said the company was only a teenager compared to Microsoft and Oracle but they are already leading in the sector. The analyst called CRM the "Zen master of the Cloud." Shares rallied only 50 cents on the coverage.
Fred's Pharmacy (FRED) agreed to buy 865 stores from Rite Aid (RAD) in an all cash transaction for $950 million. The sale is needed to complete the Walgreens (WBA) acquisition of Rite Aid. The divestiture would make Fred's one of the largest pharmacy's in the USA. Walgreens has 13,200 stores in 11 countries and Rite Aid has 4,600 stores in 31 states. Fred's currently has 641 stores.
Nvidia (NVDA) is leading a charmed life. Goldman Sachs added the stock to its conviction buy list with a target of $129. Goldman said the positive secular trends in gaming, virtual reality (VR), artificial intelligence (AI), machine learning (ML) and automotive were all benefits to Nvidia. The bank sees Nvidia's datacenter business doubling in fiscal 2018 and rising another 53% in 2019. Nvidia is currently in the middle of its fiscal 2017 so that forecast starts next year.
I am continually kicking myself for letting us get stopped out on that last dip through $90 in Option Investor.
The current crude futures contract expired at the close at $52.23. The new front month contract became current at $53.58 and a 17-month high. I expect this to bleed off over the next two days because there was no headline to support the higher price.
Dow 20,000 will be hit. It is a big fat target and hitting it before the holiday weekend will have Dow 20,000 headlines in all the papers and social news. For fund managers this would be the perfect scenario as it would bring in a lot more money from retail investors who do not normally focus on the market but would see the headlines.
I wrote about the distribution in progress last week. Today was no different. The market gapped open above resistance at 19,950-19,965 and the sellers were waiting. The initial spike was immediately sold and every recovery intraday was also sold. This is classic distribution. The surge at the close was more than likely short covering or another attempt to spike the index to 20,000 that failed.
The Dow closed at a new high and left the index close enough to 20,000 that any decent spurt of buying at Wednesday's open could hit that target but it is not likely to last. There will be too little overall volume the rest of the week to push the index significantly higher.
However, if we get a headline or a big buy program that gaps significantly through that 20K level we could get another big surge of short covering that pushes the market higher. There are a lot of traders expecting a decline in January and quite a few of them are short various stocks and indexes in expectation of that decline. If the market suddenly powers through 20K the short squeeze could be strong.
The S&P hit solid resistance at 2,270 at the open and failed to move above that level the rest of the day. The S&P continues to benefit from the sector rotation where today's strong stocks offset weakness in yesterday's strong stocks. The key level to watch is 2,250.
The Nasdaq Composite closed at resistance at 5,485 for a new high close but not quite a new intraday high. That is currently 5,486.75. The Nasdaq benefitted from a rally in financials, semiconductors and biotechs. The Nvidia upgrade helped as did another upgrade to Western Digital (WDC). The Nasdaq is poised to breakout with next resistance well above at 5,550. The key is getting past the potential January meltdown.
The Russell 2000 had a nice gain of 12 points to put it within reach of the prior closing high at 1,388. The small caps also benefitted from the surge in financials. We need to watch for a possible double top at 1,388 as that would be the logical level for a failure.
Over the last 20 years, the Dow has posted gains in 16 years for the week before Christmas. The average gain was 1.6%. None of those years had an 11% gain in five weeks prior. There are two potential outcomes. There is a chance that a touch of 20K results in a temporary decline that could last the rest of the year but could be minimal because window dressing will keep it supported. Once into January those windows will be undressed. The second option is a surge through 20K that triggers enormous short covering and price chasing by those that think the market is running away from them.
The seven days of distribution at the 19,950 level has weakened the potential for an electric shock type of rejection after a touch of 20K. Much of the stock that would have been for sale has already been sold. Volume has already collapsed. The last two days have averaged only 6.1 billion shares and the rest of the week will be even lower. While low volume can increase volatility, it can also produce boredom. Since the close tonight, the S&P futures have been flat at +0.25. There is almost no movement other than a .25 point twitch up or down every 30 min. Traders are already shutting down for the holidays. This is why I do not expect a big move over the next three days. Anything is always possible because the program traders can move the market if they want to make a splash. I would continue to recommend keeping a low profile, mostly in cash until January. Take your kids shopping instead!
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