Who is to blame for this carnage? Emerging market’s turmoil / a second Fed taper? Obama? Disappointing Q4 earnings?
The S&P 500 has plunged 4.3% in five days, yet it seems like more.
That’s an ominous start for 2014 in that the direction of stock prices in January has historically signaled the general direction for stock prices for the rest of the year, and with an impressive degree of accuracy.
The S&P 500 closed out 2013 at 1,848, leaving a scant two days to rebound sharply from yesterday’s close of 1,774 before it breaks even, much less turns positive.
This was supposed to be another good year for stock prices with many negatives fading into the past, the economies here and abroad improving, the Mid-East quiet, and corporate earnings expected to increase more than 10%.
Most likely, all that was greatly been discounted by last year’s 29% jump in the S&P 500, not to mention a bull market that rose 178% in a bit less than five years.
I see it as a year of opportunity, with high volatility featuring wide swings up and down, as the Fed continues to taper in line with an improving economy.
TODAY:
Rallies can give us a read on whether the market is losing downside momentum and setting the stage for a sustainable recovery.
If the BIG money sees this as an opportunity, it will step in and buy aggressively, and keep buying, reversing an evolving bearish mood that is beginning to sweep Wall Street.
Rally failures will tell a different story of a market that needs to probe for a comfort level with a decline of 6% to 15%.
Look for an attempt to rally today. Resistance starts at DJIA 15,846 (S&P 500: 1,785).
Investor’s first read– a daily edge before the open
DJIA: 15,738
S&P 500: 1,774
Nasdaq Comp.: 4,051
Russell 2000: 1,122
Thursday, Jan. 30, 2014 9:14 a.m.
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SUMMARY FROM MONDAY’S POST FOR NEW READERS
The recent drop in the market may be attributed to the following:
-Commentary by BlackRock Inc.’s CEO, Laurence D. Fink and GoldmanSachs’ Lloyd Blankfein essentially saying that the stock market is overpriced.
Fink used the words, “Way too much optimism,” Blankfein said, “It would be very abnormal if we didn’t have consolidating moves in assets that have gone up so much.” (ouch !)
-Then too there is growing concern for China’s economic growth. Its flash PMI (Purchase Managers’ Index) for January slid to 49.6 from 50.5; Industrial Production to plus 09.7 from 10.0; Retail Sales to plus 13.6% from 13.7%; GDP to plus 7.7% (ann.rate) from 7.8%.
–Fiscal turmoil in Argentina and Turkey and overall worries about the trend of Fed tapering is a worry abroad, though government heads here and abroad insist on a low interest rate policy going forward.
-Finally, POLITICS and the plunge in stock prices here.
It is possible the abrupt crunch in the market is also about the perception on Wall Street that due to Governor Christie’s G.W. Bridge scandal, the big Republican money not only sees its party’s front runner for 2016 in trouble, but the peripheral damage may hand control of Congress to the Democrats this year.
The stock market began to stall in the first week of January at the same time negatives surrounding Governor Christie and the G.W. Bridge story escalated, prompting the firing of key members of his administration. The crisis intensified, forcing Christe’s press conference on January 9 (DJIA:16,462), the N.J. State Assembly subpoenas on January 16 (DJIA: 16,417), and the U.S. Attorney for New Jersey subpoenas January 23 (DJIA:16,197), the day before Friday’s 318-point plunge in the DJIA.
Governor Christie had a comfortable lead in polling for 2016 Republican presidential candidates for two months until the Quinnipiac poll (1/15 to 1/19) when his numbers dropped sharply. While 2016 is well into the future, the mid-terms are not. Until now, the Republican Party’s control of the House has afforded them a counter to the Democratic White House and Senate’s agenda. If the Christie dilemma worsens.
Of course, if Governor Christie comes out of this looking good, it could result in enough of a boost in Republican sentiment to prevent a loss of control in the House.
This has not been a big hit. The S&P 500 had three meaningful corrections in 2013 (7.5%, 5.6%, 5.0%) and two in 2012 (10.5%, 8.6%) averaging 7.4% (Using intraday data).
Granted, conditions on each of those four occasions were different, but the market is much higher now. If the average of the five is applied to the DJIA, it would drop to 15,520 and to 1,720 for the S&P 500.
Not only does that suggest more downside, the severity of the decline in the last two days has created overhead supply of stock (sellers) that will be difficult to penetrate.
TODAY: (As of Monday Jan. 27)
The market will attempt to rebound this morning. Rebounds in a down market can offer good insight into the direction of the stock market near-to-intermediate term.
If this is an attractive level for the BIG money to load up, this market will roar. If the rebound lacks zip, the market is headed lower.
I suspect the BIG money is on the sidelines waiting for lower prices and that will enable sellers to wrest control of the market and take it down again.
RESISTANCE:
DJIA: 15,895 (S&P 500: 1,787)
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RECAP OF WHAT I HAVE WARNED ABOUT FOR WEEKS:
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 3.5% 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: $500.75) Negative
Plunged $44 after disappointing prospects were reported for its iPhone and guidance Monday night. Hard to say what institutions will do, but the gap open Monday created potential sellers above $515. Broke $500 briefly Wednesday. Resistance starts at $506. Break below $498 could take AAPL to $480.
Facebook (FB:$53.53) Positive/Neutral
Needs a move above $56 to maintain positive status. $52 must hold or FB at risk of drop to $49.60.
IBM (IBM:$176.40) Negative
Crushed by a disappointing earnings and outlook last Wednesday, tried to stabilize but got hammered by Friday’s plunge in the market. Resistance drops with the stock. Should try to stabilize above $174 if $176 doesn’t hold. Overall market is calling shots now. Resistance is $178.
Pulte Homes (PHM: $19.43) Positive
Found support and a big buyer last Wednesday, rebounded after early morning hit Thursday. Didn’t have a chance Friday in the market’s rout. Rallied to $19.33 Monday, but sellers turned it down. Rebounded strongly Tuesday on increased volume breaking through resistance at $19.15. Wednesday selling in a weak market was reversed to the upside with a strong close. Support $19.30, resistance $20 – $20.50.
First Solar (FSLR:$49.70) Negative
Tuesday’s rebound ran into selling early Wednesday short of $51.Needs to develop a base for recovery. That would take time. Risk of drop to $45 – $46.
Nike (NKE:$71.77) Negative –
Resistance at $72.40 – $72.80 is formidable. Stock can break $70 even drop into the high 60s. Recovery in down market difficult.
Hewlett-Packard (HPQ:$29.00) Positive.
Holding up well, but next big move to be signaled by move above $29.50 or below $28.50.
Polaris Inds. (PII:$125.67) Negative
Beat on earnings and revenues, but disappointed on guidance. Drop to $122.25 was reversed to the upside. Short covering ?? $122 – $123 must hold or PII at risk of drop below $120.
Amazon (AMZN: $384.20) Positive/Neutral
Penetrated the lower end of its trading range at $390 Friday, continued slide Monday. Tuesday was better but overhead supply is now formidable between $398 – $400. Wednesday suggests AMZN is going lower, possibly $370.
Pandora Media (P:$32.92) Positive.
Has held up well, but its history is one of extreme volatility and this stock has its detractors. Started down Wednesday and could hit $30.60 – $31.
TECHNICAL ANALYSIS ALERT LIST
All the stocks in “The Technical Alert List” have been closed out. Originally selected based on an improved technical pattern,
They were not presented as “buys” or “Sells” but as an alert to an improved technical pattern needing additional due diligence.
This was a new feature, which I expect to offer again when overall market conditions are less uncertain.
I discontinued coverage whenthese stocks became technically unattractive after rising from that level, stalling or declining either from the inability to follow through or from downward pressure in face of the plunge in the stock market.
Align Technologies (ALGN) Listed (12/23/13) at $57.03; discontinued coverage on 1/22/14 at $62.67.
Gentex (GNTX) Listed (12/23/13) at $32.64;discontinued coverage on 1/27/14 at $33.50.
Netease (NTES) Listed (12/23/13) at $74.51, discontinued coverage on 1/24/14 at $77.87.
Spirit Airlines (SAVE) Listed (12/23/13) at $46.06; discontinued coverage on 1/27/14 at $47.78.
Valeant Pharm. (VRX)Listed (12/23/13) at $112; discontinued coverage on 1/22/14 at $136.88.
Dycom (DY) Listed (12/23/13/13) at $28.05, discontinued coverage on1/27/14 at $28.13
Cognex (CGNX)Listed (12/23/13) at $36.09, discontinued coverage on 1/27/14 at $37.57.
Salex Pharm. (SLXP) Listed here (12/23/13) at $87.61, discontinued coverage on 1/24/14 at $100.05
Natus Medical (BABY) Listed (12/24/13) at $22.80, discontinued coverage on 1/28/14 at $24.29.
Sierra Wireless (SWIR) Listed (12/24/13) at $22.33, discontinued coverage on 1/27 at 23.54.
Cardtronics (CATM)listed (1/13/14) at $43.88, discontinued on 1/15/14 at $41.19.
.
RPM Int’l (RPM) Listed (1/13/14) at $43.09, discontinued coverage on 1/22/14 at $42.46
Silicom Ltd (SILC) Listed (1/13/14) at $46.44, discontinued coverage on 1/22/14 at $46.85.
Bitauto (BITA) Listed (1/13/14) at $36.44, discontinued coverage on 1/24/14 at $34.98.
Avery (AVY) Listed (1/13/14) at $50.88, discontinued coverage on 1/27 at $49.13.
Alexion Pharm.(ALXN) Listed (1/13/14) at $135.21, discontinued coverage on 1/23/14 at $140.75.
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
THE ECONOMY:
The economic calendar is heavier this week.
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.
MONDAY:
New Home Sales (10:00) Dropped sharply in Dec. to an annual rate of 414,000.
Dallas Fed Mfg. Svy. (10:30) January index rose for 9th month in a row to 14.4 from 13.1.
TUESDAY:
FOMC Meeting begins
ICSC Goldman Store Sales (7:45) +0.2 pct. for 1/25 week; 4-week average +1.5 pct.
Durable Goods (8:30) Dec. Durable Goods dropped 4.3% vs. a revised 2.5 pct. Nov.
S&P Case Shiller Home Prices (9:00) Nov. +0.9 pct. vs. +1.1 pct. Oct. y/y +13.8 pct
Consumer Confidence (10:00) Jan. index rose 3.2 points to 80.7 from 77.5 in Dec.
Richmond Fed Mfg. Ix. : Jan. index was 12 vs. 13 in both Nov. and Oct.
WEDNESDAY:
FOMC meeting announcement (2:00) no press conference.
THURSDAY:
GDP – 4th Qtr. (8:30) Proj: Q4 +3.0 pct. ann. Rate vs. 4.1 pct. (reportedly distorted)
Jobless Claims (8:30) Proj: for 1/25 week 327,000 vs. 326,000 prior week.
Pending Home Sales (10:00) Proj: Dec. minus 0.5 pct. vs. Nov. gain of 0.2 pct.
FRIDAY:
Personal Income/Outlays (8:30) Proj:Dec. +0.2 pct. +0.2 pct Nov.
Employment Cost Ix. Q4 (8:30) Proj:+0.4 pct.
Chicago PMI (9:45) Proj: Jan. index 59.5 vs. 59.1 Dec.
Consumer Sentiment (9:55) Proj: Jan index 81 vs. 95.2.
2014
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
Jan 14 DJIA 16,237 How Ugly Can This Correction Get ?
Jan 15 DJIA 16,373 Correction ? Not So Fast, Says Nasdaq
Jan 16 DJIA 16,481 Stock Pickers’ Market – Rewards, Risks
Jan 17 DJIA 16,417 Stock Pickers’ Market – Where to Look
Jan 21 DJIA 16,458 Key Day in the Market – and Why
Jan 22 DJIA 16,414 Burden of Proof on Bears
Jan 23 DJIA 16,373 Strong Rebound Today = New High S&P 500
Jan 24 DJIA 16,197 Bulls – Goal Line Stand ?
Jan 27 DJIA 15,879 Christie – Mid-Terms – Market Plunge
Jan 28 DJIA 15,837 A Very, Very Key Juncture in the Market
Jan 29 DJIA 15,928 Mini-Bear ?
George Brooks
“Investor’s first read – an edge before the open”
*Stock Trader’s Almanac
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.
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