The Dow traded to within 20 points of 20,000 but failed again to reach that level.
Close only counts in horseshoes and hand grenades but the Dow has been close to 20K multiple times over the last two weeks. Each time that distribution resistance from 19,950 to 19,975 was hit we saw volume increase immediately and the index was unable to sustain its momentum.
There is an interesting pattern forming where the Dow continues to post higher lows. If this were a normal market without an imminent change in the calendar, I would be predicting a strong breakout ahead. The higher lows means traders are buying the dips at a higher level each time. It may also be a function of portfolio managers continuing to window dress their winning stocks in hopes of ending the year at the highs. This higher low pattern is making it more likely a touch of 20K could be the final buying climax for 2016.
The economic reports were bullish with the Consumer Confidence for December surging more than 4 points from 107.1 to 113.7 and the highest level since August 2001. Analysts were only expecting a rise to 108.5. After a 9-point spike in November to 132.0 the present conditions component declined to 126.1. The expectations component rose from 94.4 to 105.5 and the highest level since December 2003. Those respondents expecting business conditions to improve shot up from 16.4% to 23.6%. Those expecting more jobs rose from 16.1% to 21.0%.
The percentage of respondents planning on buying a car rose from 12.8% to 14.3%. Potential homebuyers declined from 6.8% to 6.5%. Appliance buyers rose from 51.0% to 52.3%.
The Richmond Fed Manufacturing Survey for December rose from 4.0 to 8.0 and well above the -11.0 low back in August. The index has only posted back-to-back positive numbers twice in 2016. New orders rose for the second month and backorders ended a four-month string of declines. Manufacturing in the U.S. is facing a short-term headwind with the dollar at 14-year highs. This is going to pressure revenue and earnings in the months ahead.
In the separate services survey the headline number barely improved from 3 to 4 and remains well below the September high at 13. Excluding retail the number fell to -1. Retail employment fell from +10 to -6 for December.
The Texas Manufacturing Outlook Survey for December improved from 10.2 to 15.5 and the highest level in more than a year. New orders rose from -1.4 to +7.3 but backorders declined slightly from -2.5 to -2.9. Employment also declined from 4.5 to -2.9.
The calendar for the rest of the week is lackluster and after Wednesday, there will be no traders around to pay attention to the reports. The street is already working with a skeleton staff after setting up their positions for yearend over the last couple of weeks. Anyone left on a trading desk is just trying to avoid any disasters for three more days.
The Santa Clause rally is running out of steam. The Santa rally has fallen on its face despite the new record on the Nasdaq today. The Santa rally is the last five trading days of the year and the first two days of next year. Santa may be down but he may not be out. I expected the Dow to tag 20K on Tuesday but it fell 20 points short. There were no Dow components with a change of more than $1 either positive or negative. Apple, Goldman, IBM, United Technology and Caterpillar were the biggest gainers and the keyword there was gainer. The components are continuing to tick up slightly with 21 closing positive for the day. We still have a possibility of hitting 20K on Wednesday but a failure tomorrow should end the possibility for 2016.
The pension fund rebalance for the end of December could see between $38 and $58 billion in equities sold according to Credit Suisse. Stocks have rallied so much since the election the pension funds have to sell stocks and buy bonds to bring their mandatory ratios back into balance. That suggests Thr/Fri should have a negative bias. Normal volume will be very low so that means even $38 billion in fund selling could have a significant impact.
Stock news today was negligible because of the holiday impact. After the bell, Delta said it had reached an agreement with Boeing to cancel a $4 billion order for 18 model 787 Dreamliners. The airline had assumed that 2005 dated order when it merged with Northwest in 2008. Delta said it would continue to take deliveries of 737-900ER aircraft through 2019 as they complete two orders for 120 aircraft. No agreement terms were released. Boeing still has almost 1,200 orders for the 787 aircraft with a list price of $225 million each. Boeing shares did not move in afterhours and Delta shares rose about 50 cents.
Iran was making headlines this morning after it said it had negotiated to pay only half of the announced $16.6 billion price. Boeing is selling (50) 737 Max 8s, (15) 777-300 ER and (15) 777-9s to Iran Air. Iran's official news agency, IRNA, had a quote from the country's deputy transport minister saying "given the nature of the order and its options, the purchase price for the 80 jets was approximately 50% of the list prices. Boeing typically discounts from the list price for large orders but numbers are never revealed. Airbus will supply 100 jets for a value of $18-$20 billion but the head of Iran Air said the contract value would not exceed $10 billion. Boeing said the Iran deal would support more than 100,000 jobs in the USA. It still has to pass Congress and gain presidential approval.
The biggest gainer on the Nasdaq for 2016 remains Nvidia. This mammoth gainer has risen from $33 to $117 in 2016 for a +255% gain for the year. The stock shot up another $7.50 today after being added to Goldman's "Conviction Buy" list last week. Shares continued to rally another $1.20 after the close to $118.50. Most people do not understand how Nvidia is revolutionizing the chip sector. This is the Intel of this decade. There will be a dip in January and everyone should buy it.
Tesla (TSLA) and Panasonic announced the completion of an agreement to begin manufacture of solar cells and modules at Tesla's factory in Buffalo, New York. The agreement will create 1,400 jobs. Production will begin in 2017 and rise to 1 gigawatt of panels per year by 2019. Panasonic will invest $256 million on the acquisition and installation of production equipment. The two companies are already building a $5 billion gigafactory to manufacture batteries in Nevada.
It was not a good holiday for the toy companies. One research report showed toy sales were down -9% for the six-week shopping period before Christmas. Not only were toy sales lousy, a couple of big sales winners turned into big disappointments. Mattel's Hello Barbie Dreamhouse is an application and voice controlled version of the regular Barbie Dreamhouse. Unfortunately, there were numerous communication problems using WiFi and Mattel was deluged with complaints.
The biggest disappointment was the Hatchimals from Spin Master. Animals are supposed to hatch from a plastic egg and the toy was in very high demand during the shopping season. The $59 retail item sold for as much as $250 on Ebay. However, many of the toys had defects and refused to hatch and batteries ran down almost immediately. The company was not answering the phone because of the volume of complaints. The "all agents are busy" greeting never went away. Twitter users were bombarding social media with complaints.
Seattle Genetics (SGEN) shares fell -15% after the FDA placed a hold on several early stage cancer drugs after six patients developed liver toxicity and four patients died. One trial was placed on full clinical hold and two-phase one trials were placed on partial clinical hold. No new trials can be started until the existing holds are removed.
Disney (DIS) shares were flat after news that Carrie Fisher, age 60, had died of a heart attack. Her Princes Leia character had just been rebooted in the latest episode of Star Wars. Fortunately, for Disney the filming for the 2017 release of Episode VIII had already been completed. That means the character will continue at least through 2017. She was also slated to be in the next episode due out in 2019 but filming had not begun. Under a 1985 California law a studio must get permission from the actor's estate to use their image for up to 70 years after a death. Fans are already discussing whether she should be given a glorious on screen death at the end of the 2017 episode or as some have suggested singer Stevie Nicks could take her place. The two have a similar appearance.
The Amazon Echo device has revolutionized many areas in the lives of users. However, after the death of one user, law enforcement agencies are demanding the voice records of the conversations held in the room of the deceased user. The Echo is always listening just in case someone wants to play a song, change the thermostat temperature or reorder some item from Amazon. This amounts to a voice recorder in the room that is always on. Amazon has already released some data and the users purchase history but they are refusing to release the voice transcript without a "valid and binding legal demand properly served on us." Amazon routinely rejects "overboard or otherwise inappropriate demands as a matter of course." The Echo device was so popular they sold out well before Christmas and are not available again until late January. Amazon helped power the Nasdaq to a new high on Tuesday.
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The Nasdaq made a new record high and briefly punched through the 5,500 level. However, all the indexes finished well off their intraday highs. Volume was very light at only 4.1 billion shares and that is likely to decline except for the potential increase from the pension fund rebalance selling on Thr/Fri. Wednesday is a tossup because the news of the pension selling is so widespread we could see traders begin to short into that move on Wednesday.
The futures are mildly positive tonight but there is a lot of darkness before morning. If the Dow were to spike again at the open and tag that 20K level, I really believe it would be ringing the bell at the market top. If it does not happen on Tuesday, it could be many weeks before we get another chance.
The S&P hit resistance at 2,270 once again. That is the fifth time in the last two weeks and each time resulted in selling. Support is 2,250 and then a long drop to 2,190.
The current Dow pattern over the last two weeks is bullish in a normal market. The Dow is wedging up to resistance at 19,975 with a pattern of higher lows. However, even if we did get a breakout at this level, it is likely to be short lived once the calendar rolls over. The top seven Dow gainers since the election, GS (+65), JPM (+19), UNH (+25), TRV (+17), HD (+15), BA (+15) and IBM (+15) have accounted for 1,171 of the Dow's 2,062 points. Goldman alone has added 445 Dow points. Most of those stocks are very overextended and should correct significantly once we hit January. With only 7 stocks accounting for 57% of the Dow's post election gain, the odds are very good those same 7 stocks are going to account for a lot of the potential loss in January.
I know it is hard for anyone to believe the market is going to roll over soon since it is not showing any material signs of weakness other than distribution at the recent highs. If the Dow does not give back 1,000 points, I will be shocked. However, I have been shocked before and I am sure it will happen many more times.
The Nasdaq Composite and the Nasdaq 100 both broke out to new highs on the strength of big cap techs. Apparently, there is some money already rotating back into the tech stocks and they had been the laggards. The Composite index collapsed back -25 points from the intraday high to close right on that prior resistance level at 5,485. The Nasdaq 100 surged to almost 5,000 before falling back -27 points to close at 4,965. It was a good day for the tech indexes.
The Russell 2000 had a decent day but failed at downtrend resistance at 1,380. The small cap index is lagging to some extent and a break below 1,350 could trigger a strong sell cycle.
I hate to sound like a broken record but the market is at a key pivot point. Volume is weak, resistance is strong and time is running out on the calendar. Wednesday could be our last chance to hit Dow 20K before the pension fund selling appears. I would continue to recommend not initiating new long positions until January. There is no compelling need to be long the market. There is always another buying opportunity in the future.
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