Yesterday, I warned that a 3% - 5% correction is overdue, and added that unless triggered by news, these events occur with a slight pullback that gravitates into something bigger.
There are some technical indicators that suggest yesterday’s slide has further to go, possibly to DJIA 14,310 (S&P 500: 1,538). How far depends on the news flow as the market gives ground.
A 3% correction from yesterday’s high would take the DJIA down to 14,140 (S&P 500: 1,520). A 5% correction would take the DJIA down to 13,870 (S&P 500: 1,490).
CONCLUSION: So far this year, the bulls have been anxious to use pullbacks in prices to buy. But, sellers have put a lid on the market over the past 8 days, generally in the DJIA 14,550 (S&P 500: 1,565) area. Yesterday’s market action suggests the bull needs to take a rest, a consolidation of the nifty gains posted so far this year.
I think we need to see just how anxious the bulls are to reverse yesterday’s slippage and trigger another swing to new highs. Without question, intraday volatility has increased, suggesting a tug of war, a difference of opinion on “up” or “down.”
Resistance is DJIA 14,523 (S&P 500: 1,561). Near-term support is DJIA 14,383 (S&P 500: 1,544)
The impact of the sequester will depend largely on how much traction the economy can muster this year. Obviously, it will impact some people much more than others. If it appears it is adversely impacting the economy in general, the stock market has a problem. Just an increasing angst that it may snuff out the recovery started in mid-2009 would hit stock prices. It only has to worry investors it could snuff out , or slow down the recovery to have an impact.
No one is giving it serious consideration at this time - sequester is someone else’s problem.
Investor’s first read – an edge before the open
S&P 500: 1,551.69
Nasdaq Comp.: 3,235.29
Russell 2000: 945.85
Tuesday, March 26, 2013 (9:12 a. m.)
CASE for CURRENT LEVEL OF STOCK PRICES:
It is important to note (again) that the stock market has rebounded to the level where the bear market of 2007-2009 began. The difference now vs. then is we are not currently facing the horrendous string of adversities here and abroad we faced then. Real estate is recovering, corporations are sitting on huge stashes of cash, which must soon be spent, employment is improving, and there seems to be a greater willingness in Washington to address problems. Europe is on the mend.
We are not engaged in a full scale war, BUT I wouldn’t rule out U.S. intervention in the supply of aid to Syria from Iran.
SEQUESTER (No, it didn’t go away):
This week will feature some key economic reports (see below). At some point, the question will be raised about the sequester’s impact on the economy, notwithstanding the uncertainty it brings to persons at risk, directly and indirectly.
It is too early to expect anything to show up in the indicators, and it may never be a major issue if our economic recovery gains traction.
It is one of those potential negatives one has to consider along with other ingredients that lead to a decision to buy or sell.
Employers (government or private) may opt to furlough employees without pay, cut back on hours rather than release them putting them on unemployment at the expense the government. Even so, several weeks without pay has an impact on the economy.
This is one of those uncertainties that, along with a few others, can trigger a consolidation or pullback in the stock market.
Cyprus: Cyprus and the European Central Bank, European Commission and International Monetary Fund headed off a crisis last night agreeing to the outline of an aid package than provides Cyprus with $10 billion euros ($13 billion) of emergency loans needed to avoid default. Cyprus, the euro-area’s third smallest economy is the fifth EU country to be rescued since the crisis erupted with Greece in 2009. International stock and bond markets reacted positively.
Spain may become a reason for concern once again as the difficulty of curbing its growing deficit is complicated by the country’s slow economic growth.
Apple (AAPL: $463.58)
Yesterday AAPL hit $469, $2 above my resistance where it attracted a seller. Near-term support is $461, breaking that would call for a drop to $456. Odds favor a consolidation (sideways-to-down) ranging between $464 and $456.
At less than 10 times earnings, (a 33% discount from the S&P 500’s P/E), customer service second to none, and down 35% from its September $705 high, this industry leader clearly should be attracting more buying. I sense there is some serious money earmarked for AAPL, it is just waiting for a greener light on earnings growth going forward. Currently, the Street appears to expect a big increase in AAPL’s dividend, possibly by as much as 50%. While that would increase its interest as an investment to a wider range of investors, just be aware that dividends are taxed and the price of a stock is reduced by the amount of the quarterly dividend on the ex-dividend day. If the stock is rising at the time, it will go unnoticed, but this is not free money.
I am not long or short AAPL.
FACEBOOK (FB - $25.13) Has the persistent selling in FB been by “lock-up” investors taking some money off the table ? There is a persistent, but patient seller here using any buying to unload stock.
Yesterday, I warned of a drop to $25, but noted I wouldn’t bet on it. Wrong. It got down to $25.08. FB is now down to the level it hid on Dec. 28, prior to a sharp 28% rally that peaked in a double top in mid-January. At that time sellers started to feed stock out steadily depressing it 22%.
Who is the seller ? Possibly the insiders who were in on the May 16,2012 IPO and couldn’t sell until the “Lock-Up” period expired, the latest being mid-November which released 777 million shares. No way to tell now.
If so, their selling is most likely not due to a dim outlook for FB’s prospects. These people have sizable gains and understandably took them in 2013 rather than 2012.
There is a difference of opinion about FB’s future, suggesting we won’t know who is right for a year or two.
Between Aug. and Dec. last year, a trading range between$18 and $24 developed. That should provide support for FB and a buying opportunity. That’s where a three month tug of war took place between the believers and non-believers.
I am not long or short Facebook.
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.
Durable Goods (8:30)
S&P Case Shiller Home Price Ix. (9:00)
New Home Sales (10:00)
Consumer Confidence (10:00)
Richmond Fed. Mfg. Ix. (10:00)
Pending Home Sales (10:00)
Jobless Claims (8:30)
Chicago PMI (9:45)
Kansas City Fed. Mfg. Ix. (11:00)
Personal Income/Outlays (8:30)
Consumer Sentiment (9:55)
“Investor’s first read – an edge before the open”
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