TODAY:
Look for a drop to DJIA 16,105, a rally to 16,185, then a test of the day’s low. From what is known now, this crisis is a jolt that the Street didn’t see coming and can impact the market sharply, but briefly. The S&P 500 should drop to 1,837, bounce to 1,847, then test the day’s low.
While the correction to this international crisis can find its low this week, a basing testing trading activity can last for a couple weeks, setting up an opportunity for a spring rebound.
SUMMARY
Suddenly –UNCERTAINTY. Just when it seemed safe to zero in on opportunities in the stock market, investors get whacked by a new negative – “the bear,” Russian that is.
In a business where few things can be guaranteed, one thing is certain – there are always several balls up in the air, and no one knows when one will come plunging down to hammer stocks.
It could have been the Mid-East, the euro, China, our economy, political brinkmanship, or the Fed, but this time it is an unknown – Russia.
How does the Street assess the magnitude of risk here ?
Currently, “uncertainty” is the biggest negative facing investors, and that is enough to justify a quick plunge in stock prices.
But the situation must get much uglier to warrant a nasty drop of 7% – 10%.
POSITIVE – an OPPORTUNITY in March
On the positive side, this setback could be all that is needed to set up a March rebound, coinciding with a break in winter weather, which triggers a consumer surge in buying.
The BIG money won’t wait for the winter ice to thaw. If it sees a little daylight it will pounce.
Investor’s first read– a daily edge before the open
DJIA: 16,321
S&P 500: 1,859
Nasdaq Comp.: 4,308
Russell 2000: 1,183
Monday, March 3, 2014, 2014 9:13 a.m.
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FED CHIEF YELLEN:
Fed chief Janet Yellen, testifying before the Senate Banking Committee yesterday, assured senators the Fed planned to continued its measured pace of tapering with the final taper expected in the fall, unless a softening in the economy justifies a change.
She did note that the unemployment rate of 6.5% is not cast in stone as a threshold for moving off its zero interest rate policy, that any decision on rates would be based on a broad range of indicators, a policy she referred to as “qualitative guidance.”
The second GDP estimate for Q4 came in at an annual rate of 2.4%, lower than the first estimate of 3.2% for GDP. This compares with Q3’ GDP rate of growth of 4.1%. The Fed will have to factor in a weaker final quarter of 2013 and what it means for Q1, since it wasn’t as heavily impacted by weather.
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HOUSING STOCKS SURGE
Housing stocks responded positively over the last eight days to bad industry news. Severe winter weather has been blamed for the morbid data, which included the Housing Market Index, MBA Purchase Applications, Housing Starts, Existing Home Sales, and the S&P Case-Shiller Home Price Index.
I began tracking the following housing industry stocks Monday, February 17, in order to gauge the impact bad news had on them.
If they held up well in face of bad news, it stands to reason the severe weather masked underlying strength. If the stocks plunged it would be confirmation the weakness was real.
The stocks not only stood their ground, they extended their rally Wednesday when the group got its first piece of good news that January New Home Sales jumped 9.0%. Pending Home Sale will be reported at 10:00 a.m. today..
The reaction of this group bodes well for the economy as a whole, since housing is vital for its continued recovery.
Beazer Homes(BZH: Friday, Feb. 14 – $21.26): Friday’s close: $23.19
PulteCorp(PHM: Friday, Feb 14: -$20.02): Friday’s close: $20.99
Toll Brothers (TOL: Friday, Feb. 14 – $37.79): Friday’s close: $39.01
KB Homes(KBH: Friday Feb. – $19.03):Friday’s close: $20.40
DR Horton(DHI: Friday, Feb. 14- $23.62): Friday’s close: $24.56
. Home prices rose 11.3% last year according to S&P/Case-Shiller HPI. While that jump varies geographically, any rise has to boost homeowners’ wealth effect leading to greater investor and consumer confidence.
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A BEST SIX MONTHS to own stocks – No more corrections ???
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.
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1
Is this going to be another “BEST six months to own stocks ? . So far, the DJIA is ahead 6.0% since October 31, 2013 even with a 7% correction in the interim.
Over 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 year up 25.6% (1998 – 1999).
With the market off to a great start in October , it looked like a BEST six months was a no-brainer. This concerned me, since my research indicated that
prior to the January –February correction, I warned 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.
We have had one correction so far since October 31, another correction is possible, but unlikely barring an unforeseen crisis.
Over the last 25 years, only two corrections occurred during the November 1 to May1 six months. In 2002 there was a 6.2% correction in January and a 6.5% correction in March/April. In 2003, there was a 7.0% correction in Nov. 2002/December 2002 and a 12.9% correction in January/March of 2003.
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JANUARY BAROMETER
As January goes, so goes the stock market for the year, according to the January Barometer (JB).* The 3.6% drop in the S&P 500 in January suggests a very challenging year for investors and clearly not as rewarding as 2013 when the S&P 500 rose 29% after a 5.8% rise in the preceding January.
The JB boasts an 89% accuracy rate over the years with most of its misses explained by unpredictable events, such as war and extreme bull/bear turning points.
The rationale for the JB having predictable value is that a new year is accompanied by year-end and new year portfolio adjustments and decisions based on projections for the year ahead. It is also a time when institutions receive a lot of new money that must be put to work.
So far in 2014, the S&P 500 is unchanged. However, since January 31, its up 4.0%. Conclusion: As a barometer, it still suggests a challenging year for both bulls and bears.
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THE ECONOMY:
The economic calendar is loaded this week with both economic and housing reports.
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:
Personal Income/Outlays (8:30):
PMI Mfg. Ix,(8:30):
ISM Mfg.Ix.(10:00):
Construction Spending (10:00)
TUESDAY:
ICSC Goldman Store Sales (7:45):
WEDNESDAY:
MBA Purchase Apps (7:00):
ADP Employment Report (8:15):
PMI Services Ix.(8:58):
ISM Non-Mfg, Ix.(10:00):
THURSDAY:
Jobless Claims (8:30):
Productivity/Costs (8:30):
Bloomberg Consumer Comfort Ix. (9:45):
Factory Orders (10:00)
FRIDAY:
Employment Situation (8:30):
International Trade (8:30):
Consumer Credit (3:00p.m.):
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RECENT POSTS:
2014
Feb 11 DJIA 15, 801 Market Crossroads – Up ? or Down ?
Feb 12 DJIA 15,994 Bulls in Charge, but……….
Feb 13 DJIA 15,963 Suddenly, Concern for the Economy
Feb 14 DJIA 16,027 Buyers Panicking ?
Feb 18 DJIA 16,154 A Brief Pause or More Upside ?
Feb 19 DJIA 16,130 Can Market Shake Off Ugly Housing Data ?
Feb 20 DJIA 16,040 Winter Slump – Spring Rebound ?
Feb 21 DJIA 16,133 Housing Hanging Tough – a Harbinger ?
Feb 24 DJIA 16,103 Bull Market – the Pressure to Act
Feb 25 DJIA 16,207 Rally Failure – or Start of Another Up Leg ?
Feb 26 DJIA 16,179 Monday’s Market Action – a Signal ?
Feb 27 DJIA 16,198 Market Setting Stage for an Early Spring Rally
Feb 28 DJIA 16,272 March Setting Stage for Spring Rally
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. References to specific securities should not be construed as particularized investment advice or as recommendations that you or any investors purchase or sell these securities on their own account. 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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