A Very, Very Key Juncture in the Market

George Brooks |

   This acts like a mini-bear market with  a 4.5% drop in the major market averages in a matter of days. 

   But really, why should this be happening considering the fact  so many problems here and abroad have been addressed, corporate earnings are expected to rebound more than 10% this year along with an economy that is gaining traction though on an irregular path?

   Then too, don’t bull markets end with a sloppy stampede by the less savvy individual investor to buy highly speculative stocks ?

   That has yet to happen, which suggest higher prices before this bull market takes its final bow.

    All this can happen but not without corrections along the way, and that is what this carnage is all about.

    This is one of them.  Whether this goes on the books as a 5-percenter that will be forgotten in a month, or  an 8% - 16% drubbing depends on WHAT HITS THE MARKET  at a juncture where investors begin to lick their chops at stocks they can buy at a sharp discount to what they would have paid a week ago.

   Apple’s (AAPL) disappointing earnings caught the Street off guard, last night resulting in a 41-point drop in pre-market trading today.  The rise in Leading Economic Indicators has leveled off.  Just reported this week, December Durable Goods dropped 4.3%, December New Home Sales have dropped more than expected and maybe that’s just a start.

   Lofty expectations can get  people in a lot of trouble, and in this business where score is kept every day,  it can hurt.

   With the Street expecting a 10% increase in S&P 500 earnings, what if it’s more like  4% - 6% ?

TODAY:

   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)

 Investor’s first reada daily edge before the open

DJIA:  15,837

S&P 500:   1,781

Nasdaq  Comp.: 4,083

Russell 2000: 1,127

Tuesday, Jan. 28, 2014   9:14 a.m.

SUMMARY FROM MONDAY’S POST

  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.

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: $550.50) Negative

Not even Carl Icahn could hold AAPL up after disappointing earnings last night. It plunged in after-market trading and is off $38 in pre-market trading. Can break $500 as Street bails. 

Facebook (FB:$53.55) Positive

Tried to stabilize after plunge to $52.  Plunge in overall market puts a lid on a rebound starting at $54.60.

No change: IBM (IBM:$177.90)   Neutral/Negative

Crushed by a disappointing earnings and outlook Wednesday, tried to stabilize but got hammered by Friday’s plunge in the market. Resistance drops with the stock. Next support is $176, but overall market is calling shots now..

Pulte Homes (PHM: $18.71)  Positive 

Found support and a big buyer 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. Resistance now $19.15, support $18.00 - $18.25.

First Solar (FSLR:$48.84)  Negative

Tug of war between buyers and sellers. Not a very convincing effort to turn up. May need drop to $46 to attract buyers.

Nike (NKE:$71.90)   Negative –

Stabilized on increase in volume. Hard to tell who is winning this slugfest. Stock can break $70 even drop into the high 60s.

Hewlett-Packard (HPQ:$28.60)  Positive.

Plunge in the market can take HPQ to $26. Sellers at $29. Some support at $27.6.

Polaris Inds. (PII:$132.10)  Negative

Sharp increase in volume suggests some interest at $130. Weak market can take PII to $126.

Amazon (AMZN: $386.28) Positive/Neutral

Penetrated the lower end of its trading range at $390 Friday, continued slide Monday.. Resistance $390 - $392.  Support now $382.

Pandora Media (P:$33.12) Positive.

No change: Has held up well, but its history is one of extreme volatility and this stock has its detractors.  Could drop to $30 in a heartbeat.  

 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 sell.  NOTE: Yesterday, I have noted price levels where I thought these stocks 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.

Then too, delisting can occur if a stock becomes fully priced or its technical pattern deteriorates.

NOTE:

A plunge like what we saw last week can override   individual stocks and crush upbeat technical patterns. 

   All technical alerts have been closed out in face of weakness in the overall market.

Align Technologies (ALGN:$62.67)  Listed here (12/23) at $57.03. Due to a one-day reversal  Tuesday with resistance now at $64, ALGN is no longer technically attractive (1/22)

Gentex (GNTX: $33.50)   Listed here (12/23) at $32.64. Friday’s market plunge created resistance starting at $34, technical pattern damaged, now unattractive.

Netease (NTES: $77.87)  Listed here (12/23) at $74.51. Reversed after hitting 52-week high $84.35, but took too big a hit in Thursday’s down market, creating overhead supply  between $79 and $80. No longer technically attractive  (1/24).

Spirit Airlines (SAVE: $47.68)  Listed here (12/23) at $46.06.  Friday’s market plunge damaged pattern. Resistance styarts at $4p. Technically unattractive (1/24)

Valeant Pharm. (VRX: $136.88)Listed here (12/23)  at $112. No longer technically attractive after a big run up (1/22)

Dycom (DY:$28.13)  Listed here (12/23) at $28.05.  Friday’s market plunge damaged pattern.No  technically attractive (1/24)

Cognex (CGNX: $37.57)Listed here (12/23) at $36.09. Friday’s market plunge damaged pattern. No longer technically attractive (1/24)..

Salex Pharm. (SLXP: $100.05)  Listed here (12/23) at $87.61. Odds are it can run further, but is technically  unattractive due to big run up (1/22).

Natus Medical (BABY:$24.29) Listed here (12/24) at $22.80. Got some buying late Friday in a plunging market. Broke support at $24.40, dropping to $22.52.  While stock rebounded to close at $23.72 its pattern is doubtful enough to be technically unattractive, Resistance starts at $24.30.

 Sierra Wireless (SWIR:$23.54) Listed (12/24) at $22.33.  Could rebound but Friday’ plunge  damaged pattern. No longer technically attractive (1/24).

RPM Int’l ($42.46)  Listed here (1/13/14) at $43.09. Technical pattern weakened Friday and Tuesday. No longer attractive (1/22)

Silicom Ltd (SILC:$46.85)  Listed here (1/13/14) at $46.44.  No longer technically attractive  after inability Tuesday to top Friday close (1/22). Wrong, by a day as company announced blowout earnings announced Thursday morning and stock soared 30%.

Bitauto (BITA: $34.98)  Listed here (1/13/14) at  $36.44.  No longer technically attractive (1/24), though big drop in market may have distorted its pattern.

Avery (AVY: $49.13)  Listed here  (1/13/14) at $50.88. Could rebound but Friday’s market plunge damaged pattern. Technically unattractive. (1/24)

Alexion Pharm.(ALXN:$140.75) Listed here (1/13/14)  at $135.21. Turned unattractive Thursday with break below $140. Was  incorrectly noted  as one of two not closed out in copy preceding list of companies under Technical Analysis Alert.

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   Proj:

ICSC Goldman Store Sales (7:45)

Durable Goods (8:30) Dec. Durable Goods dropped 4.3%

S&P Case Shiller Home Prices (9:00) Proj: Nov. +0.8 pct.; y/y +13.7 pct.

Consumer Confidence (10:00) Proj: Jan. index 79 vs.  78.1 Dec.

Richmond Fed Mfg. Ix. Proj: Jan. index 10 vs. 13 Dec.

 

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 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 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

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

  George  Brooks

“Investor’s first read – an edge before the open”

*Stock Trader’s Almanac

sensiblesleuth@gmail.com

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.

 

 

 

 

 

 

 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
CIHKY China Mrchnts Bk Unsp/Adr 12.26 0.00 0.00 25

Comments

Emerging Growth

Reliq Health Technologies Inc.

Moseda Technologies Inc provides mobile and IT cloud computing to increase operational efficiency and security. It develops SmartFleet, a solution designed for commercial use, as well as SmartCare, a mHealth…

Private Markets

XY Find It

Founded by serial entrepreneur Arie Trouw, XY Findables follows a single guiding principle: customers should never lose anything important again. With over 50,000 users around the world, more than 100,000…

Dropbox, Inc.

Dropbox is a service that allows their users to bring all photos, docs, and videos anywhere, and share them easily. Any file saved to Dropbox will automatically save to all…