Last week most Tech stocks rebounded from oversold levels, but will run into renewed selling here and at higher levels. This should result in a test of last week’s lows and for many a buying opportunity.
These are fast “growers” and will attract aggressive investors in the future, especially if they get lower levels. What we have been seeing is a rotation of portfolio emphasis out of Tech and into lower valuations.
The over-valuation of Tech stocks, slower growth in China’s economy, the Ukraine/Russia crisis, angst about Q1 earnings, and the U.S. economy are drags on the U.S. economy, but this bull market has steamrollered more formidable negatives in its five-year journey.
TODAY:
This market can turn up and surge in coming weeks, but we will have to see evidence that the recent stall in the economy was weather-driven.
No spring rebound, no surge.
My “walk-around-the-block indicator” suggests consumers are returning to stores. Shopping center parking lots are jammed, traffic more intense, more dump trucks and vendors on the road. Watch housing.
I am still looking for a spring rebound in both the economy and stock market.
Minor support is DJIA 16,376, S&P 500: 1,860, Nasdaq Comp. 4,081.
Resistance starts at DJIA 16,460, S&P 500: 1,870, Nasdaq Comp. 4,111.
Investor’s first read– Daily before the open
DJIA: 16,408
S&P 500: 1,864
Nasdaq Comp.:4,095
Russell 2000: 1,137
Monday, Apri1 21, 2014 9:14 a.m.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
NEW Study: TECHNICAL ANALYSIS OF THE 30 DOW STOCKS
At key junctures, I technically analyze each of the 30 Dow stocks seeking a reasonable near-term downside risk, a more severe risk and an upside potential for each, then use the Dow “divisor” to convert that data back into the DJIA.
Currently, a reasonable risk based on present circumstances is DJIA 16,265, a more severe risk is 15,974 and the upside is 16,648. The latter would have to come after the current slide has turned the corner.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
ANOTHER 6% + CORRECTION BEFORE MAY – UNLIKELY
One of the Stock Trader’s Almanac’s great discoveries is the fact the stock market’s performance during thesix months between November 1 and May1 is far superior to the six months between May 1 and November 1.* The Almanac refers to it as the “Best Six Months.”
Over of the last 25 years, the “Best Six Months” has 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).
Over the last 25 years, there have been 14 corrections ranging between 6% and 16%, but more than one correction of this size during the Best Six Months was rare.
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.
So far, the DJIA is ahead 6.9% since October 31, 2013 even with a 7% correction in the interim. While the rout of the techs has driven the Nadaq Comp. down 6.8% in seven days, the DJIA and S&P 500 have dropped 3.6% and 4.3% respectively. Another correction exceeding 6% in either of these two is of course possible, but unlikely.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RUSSIA/UKRAINE
Russia’s annexation of Crimea was only the first step in President Putin’s power grab. Undoubtedly, he plans to stir additional unrest in sections of Ukraine where Russian speaking people are in great numbers. A military response by Ukraine would give him reason to invade Ukraine to protect pro-Russians and that would have an impact on global markets, which are vulnerable to begin with.
One of the factors that turns a normal market correction of 3% to 5% into a much bigger correction (5% to 12%) is new negatives that hit the market when it is about to rebound from the 5% correction. A sharp escalation in the Russia/Ukraine situation could be one of those factors.
SELL in MAY, and Go Away ?
NONSENSE! SELL IN MAY and STAY for one or more trading opportunities.
You will soon read about that seasonal phenom in the press and newsletters. Essentially, it is the backend of the “Best Six Months” to own stocks (November 1 to May 1). Obviously, the message here is of the two six month periods, it is the worst for stocks.
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.
Studies like this have to have a cut-off date, but are really intended to be accepted with an open mind, i.e. as May 1 approaches, move closer to the exit mentally, and be ready to lock in some profits and raise some cash.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
EUROPEAN ECONOMIES:
Manufacturing output, new orders and exports are up for the eighth consecutive month, suggesting its recovery is real, though not yet robust. Our economy has scratched and clawed its way out of a horrendous recession without help from Europe. Obviously, a recovery there stands to accelerate the pace of our recovery here.
The IMF released its latest global economic forecast as it meets in Washington this week. It sets global economic growth at 3.6% in 2014 and 3.9% for 2015, up from 3% in 2013.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
HOUSING STOCKS – A spring rebound in the economy can hardly occur without a renewal of interest in housing stocks. A big jump in mortgage apps and refi’s for the April 11 week suggests a rebound may be in the offing, as does a 2.8% jump in March Housing Starts. But the stocks do not reflect optimism yet All five closed at their lows for the day, the exact opposite of what they did Wednesday.
PARTIAL LIST:
Beazer Homes (BZH) Friday: $18.52
PulteCorp ($PHM) Friday: $18.71
Toll Brothers (TOL) Friday: $34. 16
KB Homes (KBH) Friday: $16.37
DR Horton (DHI) Friday $21.50
CONCLUSION: This group is still a good read on the potential for the economy to rebound. Good relative strength vs. the overall market would be bullish for both the industry and economy. The latter needs strength in housing to rebound significantly, since so many products key on decisions to buy a house. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
THIS WEEK’s ECONOMIC REPORTS:
Four housing market reports are scheduled for release this week two Tuesday and two Wednesday (See below). The Mortgage Bankers Purchase Apps at 7 o’clock Wednesday morning is the most time-sensitive and a possible alert to the direction of home buyer interest.
For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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:
Chicago Fed. Nat’l Activity Ix. (8:30):
Leading Indicators (10:00:
TUESDAY:
ICSC-Goldman Store Sales (7:45):
FHFA House Price Ix.(9:00):
Existing Home Sales (10:00):
Richmond Fed Mfg. Ix. (10:00):
WEDNESDAY:
MBA Purchase Apps (7:00):
PMI Mfg. Ix. (9:45):
New Home Sales (10:00):
THURSDAY:
Jobless Claims (8:30):
Durable Goods (8:30):
Kansas City Fed Mfg. Ix.(11:00):
FRIDAY:
PMI Services Flash (9:45):
Consumer Sentiment (9:55):
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:
Apr 8 DJIA 16, 245 Buying Opportunity Possible Early Monday
Apr 9 DJIA 16,256 April Opportunity Looms
Apr 10 DJIA 16,437 Swing Factor: Q1 Earnings, Spring Rebound
Apr 11 DJIA 16,170 Computer Selling = Scary Plunge = Opportunity
Apr 14 DJIA 16,026 Spring Surge Still in the Cards
Apr 15 DJIA 16,173 Selling Climax Still to Come ?
Apr 16 DJIA 16,262 Reversal – the Start of the Spring Surge ?
Apr 17 DJIA 16,424 Beware – Earnings Distortion
*Stock Trader’s Almanac
A Game-On Analysis, LLC publication
George Brooks
“Investor’s first read – an 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. Brooks may buy or sell stocks referred to herein.
Read Next
