Is this the correction I have been warning about?
After a nasty break like yesterday, which whacked some market leaders, the best read can be gained from assessing any attempt of the market to rebound.
The lack of leadership in the market this year and inability of the major market averages to move ahead got 2014 off to a bad start
Just because our economy and institutions survived a near meltdown in 2008 – 2009 and have made great strides toward full recovery over the last five years is no guarantee against a correction now.
The 5-year 178% surge in the S&P 500 has discounted the fact we have mostly survived a struggling economy, political dysfunction, Europe’s woes, slower growth is Asia, Mid-East conflicts and the first Fed taper.
While we may appear to be worry free, corrections are part of every bull market. We have had 11 corrections of 5% or more in the last five years with two exceeding 15%.*
The stock-index futures are not indicating a sharp bounce at the open.
Q4 earningswill be reported in coming weeks, along with the dreaded changes in broker ratings and estimates for coming quarters. Expect sharp moves both ways.
Two things could help the bears. One, disappointing earnings for Q4. Two, if the 10-year Treasury rises well past 3.00%, which is unlikely based on its recent drop.
Obviously, the bulls would gain from better-than-expected earnings and hopes that the Fed will hold off on its next taper in light of Fridays poor jobs report, which may have been distorted and subject to upward revision.
Resistance is DJIA: 16,323 (S&P 500:1,826)
Support is DJIA: 16,125 (S&P 500: 1,804)
Investor’s first read– a daily edge before the open
S&P 500: 1,819
Nasdaq Comp. 4,113
Russell 2000: 1,148
Tuesday, Jan. 14, 2014 9:05 a.m.
DO NOT MISUNDERSTAND MY POSITION HERE. I am still bullish. However, for weeks I have been concerned that themarket is going to get whacked, if only for several weeks; it simply has been a question of when. I think it’s in Q1, and January is a good bet. Beyond that, it will be volatile with a number of great buying opportunities.
While 5% corrections are unnerving, they are generally over in the matter of a week or two. It’s the ones that exceed 5% that are like a sharp poke in the gut.
The greater than 5% ones are news-driven or technical. News driven start with a catalyst, an incident that is going to hang around unresolved for a while.
The technical ones reflect a momentary lapse in buying.
THE KEY TO THE SIZE OF A CORRECTION:
A modest technical correction can become a greater one, if the market is hit with bad news as it is about to turn upward. That’s when a 5 percenter becomes an 8-pecenter or worse.
One strategy for investors to employ under these conditions would be to buy a partial position in a stock they want to own, but feel it could be bought at a lower price after a market correction. If it goes higher, they are still making money. If it goes lower, they can average their cost.
Likewise, if an investor feels a position is vulnerable but believes it could still go higher, he can sell off part of the position. If it goes higher, sell the rest. If it goes lower, the higher sale averages out the shares sold at a lower price.
As simplistic as this strategy is, it is easy to overlook under pressure.
I AM REPEATING THE FOLLOWING TO MAINTAIN AN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.
Best Six Months to own stocks:
Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.
The Almanac’s “Best Six” goes back to 1950. The six months is a snapshot between November and May. Many major market advances often start before November, but the point made here is the period between fall and May is where the action is.
Is this going to be another “BEST six months to own stocks ?
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*
With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).
THE DANGER: over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.
TIMING – OPPORTUNITY STOCKS
The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly.
Apple (AAPL: $535.73) Positive, borderline neutral
Needed a big buyer to reverse its 12-day slump. It got that yesterday, but $531 must hold to prevent a slip to the low $520s.
Facebook (FB:$55.91) Positive
Breakout failed on Thursday, but stock stabilized Friday. Support is now $55.60. Resistance drops to $56.45.
IBM (IBM:$184.16) Positive
Picked up a seller. Broke minor support at $185.90 and dropped to next support between $183 - $184. Stock had big 17-day run to $190. Correction not out of line, but a continued decline in the overall market can take it to $180.
Pulte Homes (PHM: $19.40) Positive
Friday’s attempt to breakout reversed by big market drop. Support is now $18.60 – Resistance is $19.70.
First Solar (FSLR:$49.86) Negative
No change. Goldman Sachs really skewered this one when it downgraded it to a sell from a buy. Broke support at $51 and headed for $46 - $48 area. Resistance $50.95.
Nike (NKE:$75.18) Negative – Could reverse with one or two day turn after big tumble.
Stock did this in early December, soulld find some buying between $73 - $74.
Hewlett-Packard (HPQ:$28.12) Positive.
Had a decent day in a lousy market but closed off from its intraday high.
Support is $27.60
Polaris Inds. (PII:$138.97) Positive
Should find some support between $137 and $138. Resistance is $140.95.
Amazon (AMZN: $390.98) Positive
After three good days in a row AMZN hit a 52-week new high at $406.89, but sellers stepped in. Sliced through reasonable support which drops to $382.
Pandora Media (P:$32.53) Positive.
Stock has been responding to positive “listener” data news for 2013 year, but overall market is hurting further upside. Highly volatile. Could drop to $30 or surge to $35. NEW ! NEW ! NEW ! - Technical Analysis ALERT list
The following is a “Technical” alert list, stocks that have indicated an improved technical pattern. I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their technical pattern is improving. Normal intraday fluctuations can offer a lower price than that listed here. Positive patterns can be interrupted by corrections.
Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop cell in line with your tolerance for risk.
NOTE: Monday’s market plunge adversely impacted most of the technical attractiveness of the following stocks. I have noted price levels where I think they should encounter buying (support). But the intensity of the weakness in the overall market can take them much lower. While lower prices can make a stock more attractive, a decline can be a way station en route to yet lower prices, especially if the overall market is in a tailspin. A break below these support levels can eliminate a stock from this list. These stocks were demonstrating technical strength before Monday’s slump, so they could rebound sharply. So much now depends on what the overall market does.
Align Technologies (ALGN:$58.69) Listed here (12/23) at $57.03. Support:$57.60
Gentex (GNTX: $32.63) Listed here (12/23) at $32.64. Support: $32.25
Netease (NTES: $78.39) Listed here (12/23) at $74.51. Reversed after hitting 52-week high $84.35. Support: $77.40
Spirit Airlines (SAVE: $46.71) Listed here (12/23) at $46.06. Support: $45.30
Valeant Pharm (VRX: $130.62)Listed here (12/23) at $112. Support: $124
Dycom (DY:$27.31) Listed here (12/23) at $28.05. Support: $26.80
Cognex (CGNX: $37.03)Listed here (12/23) at $36.09. Support $36.70
Salex Pharm. (SLXP: $95.49) Listed here (12/23) at $87.61. Support: $94.60
Natus Medical (BABY:$23.54) Listed here (12/24) at $22.80. Support: $23
Sierra Wireless (SWIR:$22.04) Listed (12/24) at $22.33. Support: $20.80
NEW ADDITIONS: (note: Not Buy recommendations, just positive technical patterns requiring additional research.
Cardtronics (CATM: $42.86) Listed here (1/13/14) at $43.88. Support: $42.30
RPM Int’l ($42.62) Listed here (1/13/14) at $43.09. Support: $42.30
Silicom Ltd (SILC:$46.75 Listed here (1/13/14) at $46.44. Support: $46.30
Bitauto (BITA: $34.44) Listed here (1/13/14) at $36.44. Support: $32.60
Avery (AVY: $50.36) Listed here (1/13/14) at $50.88. Support: $49.60
Alexion Pharm.(ALXN: $130.61) Listed here (1/13/14) at $135.21.Support:$128
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
While the number of economic reports is light, there are several key ones, especially those for housing.
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”
Treasury Budget (2:00 p.m.) Deficit dropped to $135 bi.l in Nov vs $172 bil. year ago. Two months into the new FY, the deficit is down 22%
NFIB Small Business Optimism Ix. (7:30) Proj: Index Dec 93.5Nov.
ICSC Goldman Store Sales (7:45) Proj: NA
Retail Sales (8:30) Proj: Dec 0.0 pct. vs. +0.7 pct Nov.
Import/Export Prices (8:30) Proj: Dec +0.4 pct. vs. -0.6 pct Nov.
Business Inventories (10:00) Proj:Nov. +0.3 pct
Producer Price Ix. (8:30) Proj: Dec +0.4 pct. ; ex-food and energy +0.1 pct.
Empire State Mfg. Svy (8:30) Proj: Index Jan. 3.30
Beige Book (2:00)
Jobless Claims (8:30) Proj: For week 1/11/14 327,000 vs. 330,000 (1/4)
Consumer Price Ix. (8:30) Proj: Dec +0.3 pct vs. Nov. flat; ex food/engy +0.1 pct.
Philly Fed Svy (10:00) Proj: Jan. 8.7 vs, 7.0 Dec
Housing Mkt. Ix. (10:00) Proj: Index Jan. 57.5 vs. 58.0 Dec
Housing Starts (8:30) Proj: Dec 0.985 million-unit rate vs. 1.091 mil.-unit rate Nov
Industrial Production (9:15) Proj:Dec + 0.3 pct.
Consumer Sentiment (9:55) Proj: Jan index 83.5 vs. 82.5 Dec.
JOLTS (10:00) – Job Opening Labor Turnover Svy Proj: Nov. 3.930 million vs. 3.925 mil. Oct.
RECENT POSTS - 2013
Dec 13 DJIA15,739 “Best Six Months Ahead ? Not Without an Ugly Correction in
Dec 16 DJIA January 30 Taper ? If So, Fed Needs to Schedule a Press
Conference – a Tip off”
Dec 17 DJIA 15,755 Fed to Taper January 30 ? It Should, Here’s Why
Dec 19 DJIA 15,875 Taper Today=Sell Off Followed by a rally – No
No Taper=Rally Followed by a sell off”
Dec 23, DJIA 16,221 New Feature : “Technical “Alert” List.”
Dec 24 DJIA 16,294 Buyer Panic ? Or Seller Ambush ?
Dec 26 DJIA 16,357 Year End Opportunities
Dec 27 DJIA 16,479 January 2014 Profit-Taking Will Hit Certain Stocks
Dec 30 DJIA 16,478 Be Prepared to Take Advantage of 5% January Correction
Dec 31 DJIA 16,504 Forecast: Get Ready for a Wild Ride !
Jan 2 DJIA 16,504 A Raging Bull, but Corrections Offer Opportunities
Jan 3 DJIA 16,441 More Downside in the Market ?
Jan 6 DJIA 16,469 Correction or New Up-Leg ?
Jan 7 DJIA 16,425 Market at Key Crossroad
Jan 8 DJIA 16,530 Market at Key Crossroad
Jan 9 DJIA 16,462 Bull/Bear Battle Continues – Toss Up, but…
Jan 10 DJIA 16,444 Stocks: Sharp Run Up, Or Down in January ?
Jan 13 DJIA 16,437 What’s Needed to Trigger a Surge or Slide in Stocks
* InvesTech Research, James Stack, Editor(www.investech.com - 406/862-7777). This is clearly one of the nation’s best. Get a sample issue and see for yourself.
“Investor’s first read – an edge before the open”
The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk. Brooks may buy or sell stocks referred to herein.