If anyone needs a definition of a rally failure, yesterday’s market action is all that is needed. The DJIA soared 81 points in the first hour of trading then reversed for an intraday loss of close to 300 points (high-to-low).
The reason given was not the looming sequester, but the Italian parliamentary elections which were inconclusive, and now threaten to disrupt the country’s austerity program needed to restore financial stability there and across Europe. A resolution to the deadlock may not be reached for months.
It is an unwanted uncertainty at a time global stability was thought to have been achieved.
While the impact of a March 1 sequester, automatic spending cuts of $85 billion by October 1 and $1.2 trillion over 10 years, has not appeared to impact the stock market, it may now that the surge in stock prices this year has been interrupted.
Expect both political parties to propose a way to avoid sequester before Friday with little chance of success. Expect efforts after sequester kicks in to be more successful, especially with the March 27 deadline approaching with the possibility of a U.S. government shutdown if an agreement isn’t reached.
The extreme intraday volatility over the last 17 days was a message, masked only by buying by institutional money managers to put clients’ cash to work.
The Italian scare was blamed for a sharp crunch in the market, but if it wasn’t Italy, it would have been something else, the market was due for a correction.
The correction is giving money managers an opportunity to do some buying, but looming uncertainties here and abroad stand to temper their aggressiveness.
Resistance starts at DJIA 13,858 (S&P 500: 1,496). An additional sell off today should take the DJIA below 13,700 and the S&P 500 below 1,480. While reassuring news out of Europe is unlikely this week, proposals to avoid sequester are likely from both parties this week, which would spark a brief rally.
Investor’s first read – an edge before the open
S&P 500: 1,487.85
Nasdaq Comp.: 3,116.25
Russell 2000: 895.84
Tuesday, February 26, 2013 (9:14 a.m.)
APPLE (AAPL: $442.20)
APPL’s most recent attempt to stabilize was thrown into jeopardy last Wednesday when persistent selling caused it to break down through support at $455. It is now testing two levels that produced enough buying in late January at $435 and early February at $442 to reverse its downtrend, albeit temporarily.
It is back down to $442, and needs big buyers pronto to prevent a break below the January 2013 low of $435 and another leg down. Failure to hold above $442 would suggest $400 is at risk. I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $27.27) FB broke through support at $27 Friday suggesting it must probe lower before reversing the correction that started at $32.51 on January 28.
While FB was up fractionally yesterday, it closed close to its low for the day, having his resistance at $27.64, the same level that it couldn’t rise above Friday. I see a chance of testing the $25.80 – $26.18 area this week.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help target a bottom as with FB. Comments are based on technical analysis only.
This will be a heavy week for economic reports.
But the Street is heartened by favorable economic data on employment, personal income, consumer sentiment, auto sales construction spending, durable goods manufacturing, and housing.
I am going to list the economic reports below but will not include the numbers from the last report, since those numbers are often revised significantly and therefore are potentially misleading.
I strongly urge you to access the website: www.mam.econoday.com for detailed reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports. The site does a great job graphically illustrating key indicators.
Chicago Fed Nat’l Activity Ix. (8:30)
Dallas Fed Mfg. Svy.(10:30)
FHFA House Price Ix. (9:00)
S&P Case-Shiller Home Price Ix.(9:00)
New Home Sales (10:00)
Consumer Confidence (10:00)
Richmond Fed. Mfg. Ix. (10:00)
Durable Goods Orders (8:30)
Pending Home Sales (10:00)
Jobless Claims (8:30)
Chicago PMI (9:45)
Personal Income/Outlays (8:30)
PMI Mfg. Ix. (8:30)
Consumer Sentiment (9:55)
ISM Mfg. Ix. (10:00)
“Investor’s first read – an edge before the open”
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.