SUMMARY:
Stability, but nothing dramatic defined yesterday’s market action. While the rout in Tech stocks Friday and Monday didn’t follow through Tuesday, the selling could pick up again this week.
This is a valuation correction smack in the middle of Q1 earnings report season, so uncertainty and anxiety reign.
We are also entering a period where we will get a better handle on whether our economy will emerge from the winter’s deep freeze and begin to gain traction.
If any of the global economies chip in, we stand to have the kind of reinforcement needed to justify healthy price/earnings ratios that the Street has been worried about.
TODAY:
While the market stabilized yesterday, there is an odds-on chance it will probe lower by the end of the week.
To prevent that, the bulls must buy aggressively today and tomorrow, convincing the Street the purge of Techs is over, and it’s safe to buy.
Buyers jumped in yesterday after a sharp drop in prices in early trading. Today’s open looks mixed with an upside bias.
The DJIA needs to cross (and hold above) the 16,320 level, the S&P 500 above the 1,855, and the Nasdaq Comp. 4,122 level to give control back to the bulls.
A breakout could carry to DJIA 16,367, S&P 500: 1,867, and Nasdaq Comp. 4,148.
There are plenty of investors who want to step in. Understandably, they don’t want to do so prematurely, so they’ll be watching with buy tickets in hand.
Failure of yesterday’s intraday lows of DJIA: 16,180, S&P 500: 1,837, and Nasdaq’s Monday low of 4,052 to hold sets the stage for another leg down.
Worth noting, Nasdaq, the target of recent heavy selling, hit its April low on Monday, while the DJIA and S&P 500 hit theirs on Tuesday.
The market is adjusting for the UNCERTAINTY of earnings disappointments, a purge of tech stocks, and Russia’s next move. That will either take time or lower prices.
Now is also a time to make a list of stocks a person wants to own, and stocks they feel comfortable with.
CONCLUSION:
I still expect an April/May surge. For that to happen, the numbers on the economy must improve, indicating recent softness was weather-related.
There is enough uncertainty around to justify caution, so investors may want to nibble rather than plunge.
This five-year bull market has logged in a huge gain even in face of frequent negatives and doubts, or a strong economy. A sharp improvement in the latter here and abroad would bump the bull into high gear, resulting in speculative excesses that rival those in the IPO market and eventually lead to a cruel bear market.
Investor’s first read– Daily before the open
DJIA: 16,256
S&P 500: 1,851
Nasdaq Comp.: 4,112
Russell 2000: 1,144
Wednesday, Apri1 9, 2014 9:10 a.m.
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 ?
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. More in coming days.
I don’t think it can be taken as a “given.” 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.
A TECHNICAL ANALYSIS OF THE 30 DOW COMPONENTS
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 16,157, a more severe risk is 15,888 and the upside is 16,722. The latter would have to come after the current slide has turned the corner.
Yesterday’s low in the DJIA (16,180) got close to the “reasonable” near-term risk level noted here.
TECH STOCKS IN A TAILSPIN LIST
I compiled a list of stocks for Tuesday’s post to give readers a level where key growth stocks should find support if Monday’s free-fall followed through Tuesday. It didn’t.
The idea here was to target a price these stocks could drop to if the market plunged unreasonably in a short period of time. Clearly, Tuesday had the capability of doing so.
As I indicated yesterday, these levels were a technical opinion for Tuesday only, so I am discontinuing the list, since a further sharp decline is lessened at this time. If a sloppy, emotional sell off resumes, I may post this list again with accompanied by new levels.
RUSSIA:
The Russia/Ukraine crisis will be with us for a long time. Over the weekend pro-Russian demonstrators seized administrative buildings in eastern Ukraine. Clashes can be expected between Ukrainians and pro-Russian Ukrainians. While that in itself won’t impact global markets, a Russian incursion into eastern Ukraine to “save” pro-Russian citizens would.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
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 been14 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 6.0% since October 31, 2013 even with a 7% correction in the interim. Another correction exceeding 6% is of course possible, but unlikely.
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. While this group had a brief run last week, Friday’s sell off stopped it in its tracks. Looks like we must get deeper into April for enough confirmation of a spring rebound from the severe winter weather to get a read on how much of an improvement we can expect.
PARTIAL LIST:
Beazer Homes(BZH) Friday: $19.80
PulteCorp(PHM) Friday: $19.12
Toll Brothers (TOL) Friday: $35.93
KB Homes(KBH) Friday: $16.99
DR Horton(DHI) Friday $21.84
CONCLUSION:
So far so good. While the above five found stability yesterday, they could edge lower in coming weeks as the Street tries to get a handle on the possibility of a spring thaw in the economy and housing industry. This group must be watched closely.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
THIS WEEK’s ECONOMIC REPORTS:
The economic calendar this week is light with the highlight being the FOMC report.
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:
Consumer Credit (3:00):Rose sharply to $16.5 billion due to strength in non-revolving credit (car and student loans) rather than credit card use.
TUESDAY:
NFIB Small Business Ix. (7:30): Rose 2 points to 93.4 in Mar., reversing the 2.7 point drop in Feb. reflecting optimism for future sales and inventory building.
ICSC Goldman Store Sales(7:45):Same store sales jumped 1.5% in the Apr. 5 week vs. the prior week.
JOLTS-Job Openings Labor Turnover (10:00): At the end of Feb., there were 4.173 million job openings vs. 3.874 million in Jan.. The “hires’ rate was 3.3% and “separations” rate was 3.2%.
WEDNESDAY:
MBA Purchase Apps (7:00): Rose 3.0 pct. in the Apr. 3 week for the third straight gain.
Wholesale Trade (10:00):
FOMC Minutes (2:00 p.m.):
THURSDAY:
Jobless Claims (8:30):
Import/Export Prices (8:30)
FRIDAY:
PPI-FD – inflation report (8:30)
Consumer Sentiment(9:55):
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:
Mar 26 DJIA 16,367 Bulls Must Beat Key Resistance Level
Mar 27 DJIA 16,268 Rally Failures = Lower Prices – Opportunity !
Mar 28 DJIA 16,264 April/May Surprise Surge ?
Mar 31 DJIA 16,323 CONFIDENCE Calls the Shot – April Opportunity ?
Apr 1 DJIA 16, 457 Rounding Top or Base for Big Upmove ?
Apr 2 DJIA 16,532 Market Wants to Run
Apr 3 DJIA 16,573 What the Market Really Needs Now is……
Apr 4 DJIA 16,572 New Highs Need to Hold Today
Apr 7 DJIA 16,412 Sell Off to Create Trader’s Buy
Apr 8 DJIA 16, 245 Buying Opportunity Possible Early Monday
*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.
Investor’s first read– Daily before the open
DJIA: 16,256
S&P 500: 1,851
Nasdaq Comp.: 4,112
Russell 2000: 1,144
Wednesday, Apri1 9, 2014 9:10 a.m.
SUMMARY:
Stability, but nothing dramatic defined yesterday’s market action. While the rout in Tech stocks Friday and Monday didn’t follow through Tuesday, the selling could pick up again this week.
This is a valuation correction smack in the middle of Q1 earnings report season, so uncertainty and anxiety reign.
We are also entering a period where we will get a better handle on whether our economy will emerge from the winter’s deep freeze and begin to gain traction.
If any of the global economies chip in, we stand to have the kind of reinforcement needed to justify healthy price/earnings ratios that the Street has been worried about.
TODAY:
While the market stabilized yesterday, there is an odds-on chance it will probe lower by the end of the week.
To prevent that, the bulls must buy aggressively today and tomorrow, convincing the Street the purge of Techs is over, and it’s safe to buy.
Buyers jumped in yesterday after a sharp drop in prices in early trading. Today’s open looks mixed with an upside bias.
The DJIA needs to cross (and hold above) the 16,320 level, the S&P 500 above the 1,855, and the Nasdaq Comp. 4,122 level to give control back to the bulls.
A breakout could carry to DJIA 16,367, S&P 500: 1,867, and Nasdaq Comp. 4,148.
There are plenty of investors who want to step in. Understandably, they don’t want to do so prematurely, so they’ll be watching with buy tickets in hand.
Failure of yesterday’s intraday lows of DJIA: 16,180, S&P 500: 1,837, and Nasdaq’s Monday low of 4,052 to hold sets the stage for another leg down.
Worth noting, Nasdaq, the target of recent heavy selling, hit its April low on Monday, while the DJIA and S&P 500 hit theirs on Tuesday.
The market is adjusting for the UNCERTAINTY of earnings disappointments, a purge of tech stocks, and Russia’s next move. That will either take time or lower prices.
Now is also a time to make a list of stocks a person wants to own, and stocks they feel comfortable with.
CONCLUSION:
I still expect an April/May surge. For that to happen, the numbers on the economy must improve, indicating recent softness was weather-related.
There is enough uncertainty around to justify caution, so investors may want to nibble rather than plunge.
This five-year bull market has logged in a huge gain even in face of frequent negatives and doubts, or a strong economy. A sharp improvement in the latter here and abroad would bump the bull into high gear, resulting in speculative excesses that rival those in the IPO market and eventually lead to a cruel bear market.
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 ?
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. More in coming days.
I don’t think it can be taken as a “given.” 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.
A TECHNICAL ANALYSIS OF THE 30 DOW COMPONENTS
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 16,157, a more severe risk is 15,888 and the upside is 16,722. The latter would have to come after the current slide has turned the corner.
Yesterday’s low in the DJIA (16,180) got close to the “reasonable” near-term risk level noted here.
TECH STOCKS IN A TAILSPIN LIST
I compiled a list of stocks for Tuesday’s post to give readers a level where key growth stocks should find support if Monday’s free-fall followed through Tuesday. It didn’t.
The idea here was to target a price these stocks could drop to if the market plunged unreasonably in a short period of time. Clearly, Tuesday had the capability of doing so.
As I indicated yesterday, these levels were a technical opinion for Tuesday only, so I am discontinuing the list, since a further sharp decline is lessened at this time. If a sloppy, emotional sell off resumes, I may post this list again with accompanied by new levels.
RUSSIA:
The Russia/Ukraine crisis will be with us for a long time. Over the weekend pro-Russian demonstrators seized administrative buildings in eastern Ukraine. Clashes can be expected between Ukrainians and pro-Russian Ukrainians. While that in itself won’t impact global markets, a Russian incursion into eastern Ukraine to “save” pro-Russian citizens would.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
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 been14 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 6.0% since October 31, 2013 even with a 7% correction in the interim. Another correction exceeding 6% is of course possible, but unlikely.
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. While this group had a brief run last week, Friday’s sell off stopped it in its tracks. Looks like we must get deeper into April for enough confirmation of a spring rebound from the severe winter weather to get a read on how much of an improvement we can expect.
PARTIAL LIST:
Beazer Homes(BZH) Friday: $19.80
PulteCorp(PHM) Friday: $19.12
Toll Brothers (TOL) Friday: $35.93
KB Homes(KBH) Friday: $16.99
DR Horton(DHI) Friday $21.84
CONCLUSION:
So far so good. While the above five found stability yesterday, they could edge lower in coming weeks as the Street tries to get a handle on the possibility of a spring thaw in the economy and housing industry. This group must be watched closely.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
THIS WEEK’s ECONOMIC REPORTS:
The economic calendar this week is light with the highlight being the FOMC report.
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:
Consumer Credit (3:00):Rose sharply to $16.5 billion due to strength in non-revolving credit (car and student loans) rather than credit card use.
TUESDAY:
NFIB Small Business Ix. (7:30): Rose 2 points to 93.4 in Mar., reversing the 2.7 point drop in Feb. reflecting optimism for future sales and inventory building.
ICSC Goldman Store Sales(7:45):Same store sales jumped 1.5% in the Apr. 5 week vs. the prior week.
JOLTS-Job Openings Labor Turnover (10:00): At the end of Feb., there were 4.173 million job openings vs. 3.874 million in Jan.. The “hires’ rate was 3.3% and “separations” rate was 3.2%.
WEDNESDAY:
MBA Purchase Apps (7:00): Rose 3.0 pct. in the Apr. 3 week for the third straight gain.
Wholesale Trade (10:00):
FOMC Minutes (2:00 p.m.):
THURSDAY:
Jobless Claims (8:30):
Import/Export Prices (8:30)
FRIDAY:
PPI-FD – inflation report (8:30)
Consumer Sentiment(9:55):
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:
Mar 26 DJIA 16,367 Bulls Must Beat Key Resistance Level
Mar 27 DJIA 16,268 Rally Failures = Lower Prices – Opportunity !
Mar 28 DJIA 16,264 April/May Surprise Surge ?
Mar 31 DJIA 16,323 CONFIDENCE Calls the Shot – April Opportunity ?
Apr 1 DJIA 16, 457 Rounding Top or Base for Big Upmove ?
Apr 2 DJIA 16,532 Market Wants to Run
Apr 3 DJIA 16,573 What the Market Really Needs Now is……
Apr 4 DJIA 16,572 New Highs Need to Hold Today
Apr 7 DJIA 16,412 Sell Off to Create Trader’s Buy
Apr 8 DJIA 16, 245 Buying Opportunity Possible Early Monday
*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.
