SUMMARY:
On four occasions in the last three months the market looked like it was breaking out to run higher only to reverse abruptly and correct downward.
This is the ultimate “teaser” market with its false breakouts up and down. It has a capacity to plunge if it becomes suddenly obvious the U.S. economy cannot generate renewed traction at a time the market is up 188% from its March 2009 bear market bottom, up 52% in just two years without a major correction along the way and a current P/E a smidge above normal.
But, those are the very ingredients that cultivate a compulsion to buy more driven by fear that stocks cannot drop significantly and can only go up.
Money managers must produce sizable gains for their clients or lose the account. Hedge fund managers mostly get paid a percentage of gains generated, so everyone knows what they must do.
This brings us to “activists” who according to Market Watch sport a war chest of $100 billion, feast on poorly run companies but need to accumulate a lot of stock before introducing themselves to management.
TODAY:
The “upside” for stocks from here will be hard work, unless driven by increasingly good economic news and the same from abroad.
The “downside” could be abrupt, a freefall if the economic rebound from the winter slump fails to develop soon. At this point, odds favor a healthy, though not robust, rebound in the economy. I think the Street mostly believes that, but still has its doubts, ergo no stampede to buy stocks.
The ideal would be a sideways trading range throughout the summer that gives the forces of supply and demand a chance to balance out, yet allows selective situations to perform and new leadership to surface.
Resistancetoday is DJIA 16,767; S&P 500: 1,929; Nasdaq Comp.: 4,269.
Support today is DJIA: 16,656; S&P 500: 1,915; Nasdaq Comp: 4,241.
Investor’s first read– Daily edge before the open
DJIA: 16,698
S&P 500: 1,920
Nasdaq Comp.:4,247
Russell 2000: 1,140
Saturday, May 30, 2014 9.13 a.m.
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NOTE: I continue to run “Sell in May” and “Housing” for two reasons. One, this analysis is relevant and I add important content frequently. I get new readers, and I want them to have access to this insight.
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Sell in May and Go Away ??
A popular jingle this time of the year for newsletters and journalistsMay has offered a number of timely exits, but I don’t buy the “stay away” part, clearly not until November.
Based on the market’s strength since May 21, it looks like my contrariness is being rewarded. The DJIA closed at 16,580 on April 30, has undergone two corrections but is now higher than on May 1.
Both of those corrections looked like the beginning of something, but turned out to be head-fakes.
Undoubtedly, more corrections will lead “sell in May” investors to want to pack it in until November. For a while they will believe they were right, that is, until another sharp rally raises doubts.
Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). This is true, but as I have noted with the Best Six Months, a lot can happen in the interim.
This bromide can’t be taken as a “given.” Of the 26 years I studied a “top” occurred in May on 10 occasions ranging from May 1 to May22. Two occurred in June and two in July. No meaningful top occurred in 12 of the years studied.
On far too many occasions over the last 26 years a May top was followed by a decline, but within months (well before Nov. 1) the market rallied sharply. I see it more as a trading opportunity – i.e. “Sell in May,” but be ready to buy back after a plunge.
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HOUSING:
The economy needs a contribution from the housing sector if it is going to gain major traction coming out of the winter slump.
Pending Home Sales rose 0.4 pct. in April vs. a gain of 3.4 pct. in March when it ended nine straight months of declines.
Inventories continue to drop along with falling mortgage rates, a combo that forces home prices upward, which should prompt a stampede to buy before available attractive homes are picked up. The problem is banks are not anxious to lend at such low rates and many buyers simply can’t qualify for mortgages.
Even so, housing stocks got a big boost Friday and are beginning to show positive chart patterns. While Monday was quiet, housing stocks spiked at the open Wednesday on news D R Horton’s earnings more than doubled in Q2. Thursday was a consolidation day except for BZH which reversed selling to close near its day’s high and DHI which broke out
PARTIAL LIST :
Beazer Homes(BZH) $19.81
PulteCorp(PHM) : $19.74
Toll Brothers (TOL): $36.40
KB Homes(KBH): : $16.62
DR Horton(DHI) : $23.88
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THIS WEEK’s ECONOMIC REPORTS:
This is a big week for economic news. If it indicates the economy is charging out of its winter slump, money managers can expect to ramp up buying, assuming the outlook for corporate earnings will improve.
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.”
TUESDAY
Durable Goods (8:30): Increased 0.8 pct. in April vs. +3.6 pct (revised up from 2.6 pct. Projections were for drop of 0.8 pct. Ex-transports gain was 0.1 pct.
FHFA House Price (9:00): A gain of 0.7 pct in Mar. vs. 0.6 pct. gain Feb.. Year/year for Mar. was +6.4 pct.
S&P Case Shiller Home Prices (9:00): 20-city index more than projected at +1.2 pct. vs.0.8 pct. Year/year was +12.4 pct.
NOTE: The major difference between FHFA and Case Shiller is FHFA covers 13 more states and includes many more small towns as well as refi appraisals.
PMI Svcs flash (9:45): Jumped to 58.4 in May from 54.2 in Apr.
Consumer Confidence (10:00):Remained firm at 83.0 up from81.7 (revised)
Richmond Fed Mfg. Svy (10:00): Flat in May at 7.
State Street Investors Confidence Ix.(10:00) Remains strong at 119.5 in May vs. 119.0 in Mar..
Dallas Fed Mfg. Svy(10:30): Increased to 11.7 from 4.9
WEDNESDAY:
MBA Purchase Apps (7:00): Flat for the May 23 week, refi’s likewise
ICSC Goldman Store Sales(7:45): Down 1.2 pct. for the May 24 week (+2.1 pct. y/y)
THURSDAY:
GDP (8:30): Q1 revised down to minus 1.0 pct.
Jobless Claims (8:30): Down 27,000 for May 30 week to 300,000
Corporate Profits (8:30): Q1 corporate profits declined at an annual rate of 5.1% following a 7.9% rise in Q4. Year/year profits gained 5.3% vs.. a y/y gain of 6.0% in the prior qtr..
Pending Home Sales (10:00): Rose 0.4 pct. in April vs. a gain of 3.4 pct in March
FRIDAY:
Personal Income (8:30):Personal Income rose 0.3 pct. in Apr. vs. a gain of 0.5 in Mar. Consumer Spending dropped 0.1 pct. in Apr. vs a gain of 1.0 pct in Mar..
Chicago PMI (9:45):
Consumer Sentiment (9:55):
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RECENT POSTS:
May 13, DJIA 16,695 Bulls in Wings – Market Needs a Spark
May 14 DJIA 16, 715 What Could Spark a Surge or Plunge
May 15 DJIA 16,613 Market Needs Help from Economy, or…
May 16 DJIA 16,446 Bulls Blinked – But Don’t Get Too Bearish
May 19 DJIA 16,491 Stock Market Getting Ready for a Move ?
May 20 DJIA 16,511 Bull Still Alive
May 21 DJIA 16,374 Market Needs Help from Fed and Economy
May 22 DJIA 16,533 Again – Stock Market Set for a Big Move
May 27 DJIA 16,606 Market to Key on Week’s Economic Reports
May 28 DJIA 16,675 Stock Market Needs a Catalyst
May 29 DJIA 16,663 European Monetary Ease June 5 – a Catalyst ?
*Bloomberg
**Stock Trader’s Almanac
A Game-On Analysis, , LLC publication
George Brooks
“Investor’s first read – a daily edge before the open”
Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is 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.
