Investors were largely indecisive on Tuesday as a mid-day rebound was unwound into the closing bell on reports of a possible bomb attack in Germany — with reports of possible attacks on a stadium and the train system.
In the wake of the terrible over-the-weekend attack on Paris, tensions are high.
In the end, the Dow Jones Industrial Average gained a fraction after hitting resistance at its 200-day moving average, the S&P 500 lost 0.1%, the Nasdaq Composite gained a fraction, and the Russell 2000 lost 0.3%. Treasury bonds were slightly stronger, the dollar strengthened, gold declined 1.4% to continue an epic selloff, and crude oil lost 2.4% to close at $40.47 per barrel.
Healthcare stocks led the way with a 0.4% gain, thanks to pharmaceuticals followed by telecoms. Utilities and energy were the laggards, falling 1.9% and 1.2%, respectively. Netflix, Inc. (NASDAQ:NFLX) gained 5.2% on reports that several hedge funds added new positions or bolstered existing positions in the stock, given all the attention on cable/satellite cord-cutting.
Retail results were in focus. Home Depot Inc (NYSE:HD) gained 4.4% on a Q3 earnings beat, driven by a 5.1% increase in comp-store sales. TJX Companies Inc (NYSE:TJX) gained 3.9% on a Q3 beat and customer traffic momentum. And, Wal-Mart Stores, Inc. (NYSE:WMT) gained 3.5% after reporting slightly better-than-expected earnings on a 1.5% increase in comp-store sales, in line with estimates. Store traffic increased to 1.7% from 1.3%.
On the downside, Dick’s Sporting Goods Inc (NYSE:DKS) dropped 9.4% on a Q3 earnings-per-share miss on weaker-than-expected comp-store sales (0.4% vs. an expected 1.9%) and lower guidance. Urban Outfitters, Inc. (NASDAQ:URBN) lost 3.8% on weaker-than-expected comp-store sales.
On the economic front, the October consumer price inflation report rose just 0.2% month over month, in line with estimates. The annual core inflation rate, removing volatile food and energy prices, clocked in at a 1.9% annual rate. Industrial production dropped 0.2% over September, below expectations, for a 0.1% gain due to lower output in the mining and utility sectors. Manufacturing activity came in slighter better than expected.
On Wednesday, the release of the Federal Reserve’s October meeting minutes will bring the threat of a December interest rate hike back into focus — the reason stocks have been drifting lower this month.
Technical indicators continue to send warning signals, with stocks standing alone against declines in commodities and high-yield bonds. Market breadth, or the percentage of stocks in uptrends, has been falling. And fear, as represented by the CBOE Volatility Index (VIX), has been on the rise.
As a result, I continue to recommend a defensive positioning to clients, with Edge subscribers enjoying a 24% gain in their VelocityShares 2x VIX (NASDAQ:TVIX) position, while Edge Pro subscribers are holding a 101% gain in their iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) Nov $19 calls.