Most Septembers are remembered because of their bearish volatility.
This September may be remembered for its record highs. All the major indexes closed at new highs with the exception of the Russell 2000. The Dow only squeezed out a 0.44-point win but it was still a new high. Apple was a big driver intraday with gains of more than $2 but the sell the news move appeared right on schedule.
McDonalds was the biggest drag and kept the index from higher highs. The burger chain fell $5 and erased 35 Dow points after an analyst warned same store sales could be light in Q3.
Data tracking firm M Science warned that McDonalds U.S. revenues and same store sales would miss estimates because of the two hurricanes. McDonalds has more than 2,000 stores in those two states but obviously not all of them were in the flood zones. The company also warned that higher gas prices would result in lower fast food sales for all chains. This is just an opinion by M Science and McDonalds has 36,899 stores. McDonalds did not respond to analyst calls.
The stock had broken out to a new high at $161.53 on Monday.
The economic reports did nothing for the market today. The NFIB Small Business Survey for August gained only a tenth of a point to 105.3. The internal components were relatively flat. The job-opening component declined from 35 to 31 and the earnings trends declined even further from -10 to -11. Those respondents expecting the economy to expand over the next six months were flat at 37%. The report was ignored.
The Job Openings and Labor Turnover Survey (JOLTS) for July was flat with June at a 4% job openings rate. Job openings rose only slightly from 6.116 million to 6.170 million. Hires also rose only slightly from 5.432 million to 5.501 million. Quits rose from 3.130 million to 3.164 million. Layoffs fell slightly from 1.806 million to 1.783 million. The report confirmed that employment was stable and employment was rising slowly and steadily. Since we already have the August data from ADP and the Nonfarm Payrolls, this report was also ignored.
The API Inventory report after the close showed a build of 6.181 million barrels of crude oil. However, gasoline inventories declined by 7.896 million barrels and the largest one week decline on record. Obviously, this was due to the refinery outages over the prior two weeks. Consumers were still burning gas but 31% of our refinery capacity was out at the peak.
The calendar for the rest of the week is led by the price indexes on Wed/Thr. The Fed will be hoping for signs of inflation other than the sharp rise in fuel prices. The Fed is not expected to hike rates at the September 20th meeting. There is a zero percent chance according to the fed funds futures.
This is a quadruple witching option expiration and volume will be higher over the next three days. With the strong gains over the last couple of days, many option holders have probably already cashed out of their positions. This could limit volatility from expiration pressures for the rest of the week.
The big news today was obviously the Apple product announcement. As expected, they announced the iPhone 8, 8+ and the iPhone X, which is called the iPhone 10 with X the Roman numeral for ten. CEO Tim Cook said it was the biggest leap forward in innovation since the release of the original phone 10 years ago. The X has a superfast 6-core processor. The phone does not have fingerprint ID and instead relies on facial recognition technology to unlock the phone. During the on stage demo, the recognition failed and the presenter had to switch to another phone to continue the demo. That is going to be a worry for buyers. What if my phone suddenly forgets my face and I cannot get the phone to open?
They announced Apple TV 4K, which is an update of their set top box that can stream 4K movies. They also confirmed it will come with an Amazon Prime app so Prime members can stream their Amazon shows in 4K on the Apple TV device.
Probably the most talked about device was the new Apple Series 3 Watch. It comes in two models cellular and non-cellular. The cellular version can make and receive calls, send messages and do almost everything the iPhone can do. Somewhere Dick Tracy is smiling. Apple said they guarantee at least 18 hours of battery life even though it is an LTE speed cellular phone. The cellular version is $399 and the standard version is $349. Apple said they are now the largest watch manufacturer in the world, watch sales rose 50% over the last year and the watch now has a 97% customer approval rating. This new cellular watch is getting a lot of buzz and it could catapult watch sales significantly into a major revenue center.
The iPhone 8 starts at $699 and the 8+ at $799. They have significantly faster processors and Apple claims they have longer battery life. The iPhone X starts at $999 with 64gb of memory and has the option for 256gb of memory. All three phones offer wireless charging where you just lay the phone down on a charging pad. They are using the standard Qi standard and that appears to put to rest the worry they were going to require Apple licensed charging products with some kind of change to the Qi parameters.
T-Mobile offered a $300 trade-in for any iPhone 6 or newer. Sprint CEO Marcelo Claure said if you can find a better price anywhere, Sprint would match it.
The iPhone 8 models can be ordered on Sept 15th and be available on Sept 22nd. The iPhone X cannot be ordered until Oct 22nd and will be available on November 3rd. This caused an immediate sell the news drop in the stock. Apple was expected to sell 84 million phones in Q4 and not having the X until a month into the quarter and probably in lower quantities, could really put a crimp in Apple's sales forecasts. However, late in the afternoon they affirmed their current guidance saying they had planned for these dates in their original Q4 guidance.
The late ship on the X confirms all the rumors over the past months about low yields and multiple manufacturing issues. The big question now is whether they can get those issues fixed in time to produce a sufficient quantity in Q4. They also risk consumers holding off on buying the model 8 versions and waiting on the model X, which may or not be available in Q4. That could derail the normal iPhone upgrade process. There is also the price at $1,000 that could sour buyers on having to spend that much money on a phone regardless of how cool it is. Apple has some hurdles to overcome over the next four months. Shares rallied to $164 during the presentation but declined to $158.77 after the delivery delay was announced. Since Apple shares typically decline in the 3-4 weeks after a normal announcement, they could decline even more this year because of the uncertainty. The October 160 puts had volume of 10,255 contracts and the 155 puts traded 12,154 contracts. A lot of traders are betting on that decline.
With no earnings to report, it was a slow news day except for the Apple product announcement. Nordstrom (JWN) spiked 10% after the close after a report the Nordstrom family was close to choosing private-equity firm Leonard Green & Partners to help fund about $1 billion in a buyout to take the company private. Reportedly, the Nordstrom family has been talking to banks to line up an $8 billion loan to finance the deal. Family members own just over 30% of the stock. At the close the company had a $7 billion market cap.
Also after the close, Reuters warned that Harvey and Irma would hit apparel retailers harder than restaurants and other retailers. Analysts cut same store sales estimates from a +0.6% rise to +0.1% because of the storms. Dunkin Donuts could lose $17 million in sales if their stores were closed for a week and that would be 10% of their quarterly estimates. Bojangles (BOJA) could be hit the worst because the southern cooking stores are located in the South. Canaccord said more than 80% of their stores are in the storm-hit areas.
A Gordon Hasket analyst said Wal-Mart and dollar stores would only see a modest decline because the stocking up on supplies ahead of the storms and then replenishing items after the storms would offset the days the stores were closed. They said home improvement stores like Home Depot were much better positioned and same store sales could rise 3.5% to 4.0% in Q3/Q4.
Foursquare, a location data tracking company, said foot traffic at Whole Foods rose 25% in the week after Amazon completed the acquisition. Everyone wanted to see what was different and how much prices had changed. Amazon cut prices on some items by as much as 43%. The key will be the prices a month from now.
Reportedly, Amazon had more than 2,000 Whole Foods branded items on its website during the first week. One Click Retail said Amazon sold more than $500,000 of Whole Foods items sold through Amazon Fresh, Prime Pantry and Prime Now websites. Another report said Amazon sold out of the majority of the top 400 Whole Food branded items.
Disney (DIS) said it was delaying the release of "Star Wars: Episode IX" by 7 months until December 2019. The delay came after the studio said it had hired J.J. Abrams to direct and co-write the ninth film in the Star Wars series. Abrams directed "The Force Awakens" and created more than $2 billion in box office revenues. He had previously said that would be his only film. Apparently, large sums of money changed his mind. Disney shares gained 80 cents but they are a long way from recovering the loss from their profit warning last week.
The lithium miners have been on a tear this week after China said it was going to ban gasoline powered cars in the years ahead. China is not alone. At least 8 other countries are considering gasoline bans. Those include Britain with a 2040 date, France 2040, India 2030 and Norway 2025. Germany, Austria, Denmark, Ireland, Japan, the Netherlands, Portugal, Korea and Spain are still determining target dates for a ban on sales. OPEC are you listening?
Albemarle (ALB) and Sociedad Quimica Minera De Chile (SQM) shares are soaring on the news. The Lithium ETF (LIT) is also on fire.
This is the fourth longest period in history of the markets without a 5% decline and it does not appear we are going to get one in September. However, this is September and market direction can change at any time. The new highs today were encouraging but two days does not make a trend.
The removal of the political hurdles went a long way towards removing some of the clouds over our future. President Trump is preparing a full court press with a full roadshow on tax reform and that will produce market lift in anticipation of an eventual compromise over the next 90 days. Some people do not believe tax reform will happen but the republicans have to do it or there will be a lot fewer republicans after the 2018 elections.
If Janet Yellen produces another dovish Fed statement next Wednesday that would be another weight off the market even though that is a very minor weight today. If they announce a tapering of QE that is a wild card. It has been so telegraphed and expected, it should not move the market but we never know.
The S&P broke out to a new high on Monday and then extended that high today to close at 2,496. Unfortunately, that is only 4 points from 2,500 and what will likely be a selling point for all the algorithmic computers. Several analysts have upgraded their yearend targets well over 2,500 but that is still a large round number where computers are probably going to take profits. If by chance we do blow through 2,500 we could be off to the races. Craig Johnson at Piper Jaffray raised his price target on Monday to 2,575 saying there were more upside than downside catalysts.
The Dow closed over its prior high by a whopping 0.44 of a point. McDonalds and United Health were major drags. Apple could be a major drag over the next several weeks if their normal post announcement depression appears on schedule.
The banks were up today because interest rates were rising. The yield on the ten-year rose to 2.17%, up from a low of 2.034% last week.
The Dow needs to surge through the intraday high at 22,179 and add some gains to avoid forming a double top formation at 22,118.
The Nasdaq closed at a new high and only 6 points from a new intraday high over 6,460. The big cap techs are going to be Apple reactive over the next several days. If Apple fades, I would not be surprised to see the rest of the big caps fade. If the Nasdaq can push through 6,460, the next material resistance would be around 6,600. That is a long sprint and there would probably be several pauses along the way.
The broadest of the market indexes, the Russell 3000, rallied to a new high but came to a dead stop at uptrend resistance at 1,476. This index IS the market. If it can push through that level, the rest of the indexes will follow suit.
At the risk of jinxing the market, there are very few obvious roadblocks in our future. There could always be new ones appear and that could include something like a new missile launch from North Korea even though I think traders would immediately buy the dip.
The problem for me is that when everything starts looking too bullish, I feel like there is something I am missing or there is a Black Swan event just around the corner. However, I am going to remain long until proven wrong.
We had an Irma induced problem with the newsletter on Monday. Thomas is in North Carolina and experienced internet problems because of the remnants of Irma. The newsletter failed to go out on Monday night and the problem was not corrected until late on Tuesday. I apologize for the problem but I have learned after doing this for the last 20 years that sometimes "stuff happens" and we just have to deal with it and go on.
Enter passively, exit aggressively!
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