Question of the Week

Speculation is swirling over who will be the replacement for James Comey as the FBI director. Who do you think it will be?

Trey Gowdy
Chris Christie
David Brown
Ray Kelly
Or....

We were awakened yesterday morning to fresh scenes of chaos involving the airline industry after a full-fledged riot broke out over the cancellation of a bunch of Spirit Airlines flights. While many were shaking their heads about this latest black eye, the industry was releasing operating statistics for the month of April.

The numbers were unbelievably amazing.

American, Southwest, and United Airlines all saw higher and in some cases, record-breaking –traffic. United Airlines enjoyed more than a 7% increase in passenger miles after posting the fewest cancellations ever in the company’s history. There was even a 145-hour stretch without a single cancellation.

The news didn’t help the Dow Jones Industrial Average, which couldn’t find any traction; it gave up a lot of ground into the close and dragged the S&P 500 along for the ride.  After the bell, Disney (DIS) posted mixed results beating on earnings, but just missed consensus on revenue growth.  The stock was slightly lower in after-hours trading.

Many are wondering if individual investors are too bullish, and I would say the answer is no.  According to the American Association of Individual Investors, bullishness is increasing to 38% from 30% on March 9^th.  Interestingly, those investors that are neutral actually edged higher over the same period to 32%.

Still, the level of bullishness is at the level of the start of 2017, and well below levels that marked tops in the past:

• 2008: 53%
• 2000: 75%
• 1987: 66%

Handing the Shorts…Their Shorts

The real story of this market is the fate of short sellers. 

These are the folks that make huge bets on stocks to move lower; while they have had some big wins, 2017 is turning into the bloodiest year for those that typically reap rewards when everyone else is hurting.   

Yesterday, two of the biggest winners were beneficiaries of short squeezes:

• Wayfair Inc. (W) +21% has 59% of its float short
• Sturm, Ruger & Co. (RGR) +10% has 35% of its float short

I think the next big short squeeze will be Restoration Hardware (RH), which has 66% of its shares in the float short.

Today’s Session

The market is being weighed down this morning from a confluence of things including:

• James Comey firing and histrionics including cries of constitutional crisis
• Disney missed on revenue and shares will open lower
• Wilbur Ross throws cold water on 3% GDP growth in 2017   

The warning from the Commerce Secretary came on the same day the Atlanta Fed lowered its 2Q17 GDP estimate to 3.6%; it began the quarter at 4.3%.

Disney is grabbing all the headlines, but the earnings report that might matter more comes from Vulcan Materials (VMC), which beat on the top and bottom lines, crushed consensus and management offered strong guidance based on what could be a perfect storm.

• Continuing recovery 
• Higher levels of public construction
• Increase in private demand

This kind of session is the test the market needs after the Dow and S&P slipped yesterday.

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