Odds favor a January correction (4.5% – 6.3%)
Llighten up on stocks that have had an unreasonable run, don’t chase running stocks and have some cash to take advantage of lower prices.
Investors prefer to read optimistic news. Only the doomsters opt for bad news or opinions calling for a drop in stock prices.
Even a well-meaning analyst or writer like myself who warns of a correction, worse yet a bear market, is at risk of ill feelings, hate, or becoming a no-read going forward.
Here’s the problem. If timed right, a warning of a correction, or a “sell,” will come at a time when the market is frothy, a time when investors are making easy money. They don’t want it to end. They have already computed their net worth a year out, or targeted something they want to buy.
Anyone who suggests stocks aren’t going higher, much less will decline is on their hit list.
It happened to me years ago when I decided a great way to launch a new market letter was to put out a well publicized timely “SELL” when speculation was rampant and the less-informed were making more money than the well-informed.
People I knew were outraged, saying things behind my back, crossing the street when they saw me coming, and not writing any checks for my service.
I was spot-on, the market plunged. But instead of kudos, their ire was worse. I was right, they were wrong !
I tend to be wary of readers getting hurt, part of me that says I should do something else for a living.
I think it is easier to make money for people you aren’t close to and especially investors who are savvy enough to know a loss on occasion is part of the process of making money. You don’t worry.
MOST $$ MADE FOR NON-CLIENT
I think the most money I ever made for someone was a non-mob bookie. He wasn’t a client, and I never placed a bet, but every time I ran into him we’d chat. “How’d the weekend go, ?” I would ask. After a response, he’d reply, then ask, what looks good, you know, something far out, and I’d respond with a stock I was afraid to recommend to most people.
Years later after his death, I was told he always bought those stocks and made a bundle. You see, I was not hesitant to recommend those stocks, because I knew he knew how to take the losses with the gains.
So, if you don’t know it by now, I worry about readers, and tend to value preservation of capital over the kind of big score that can only come with reckless buying.
CONCLUSION: No change from Friday
Be on the alert for the impact of selling in 2013’s big winners in January 2014 by investors who want to defer capital gains into the new year.
Just how much of an impact selling from this source could have is hard to calculate, but the S&P 500 is ahead 29% with three days left in the year.
The S&P is up 12% since mid-November with only a moderate, disjointed correction in the interim (Nov. 29 – Dec. 12).
For the present, the Street is not worried about the stock market, taper, the economy, Europe, China, Congress, or the Mid-East, which is good reason to be cautious about investing too aggressively, especially in stocks that have had a huge run.
This bull has further to go with speculation running wild as the individual investor finally concedes it is safe to return to the market en mass.
What an investor doesn’t want is to buy a stock right before a sharp correction, then spend months recouping his loss – if he is lucky.
Corrections are part of bull markets. The key is to avoid getting mauled by one, but also being in a position to take advantage of lower prices.
Some of 2014’s biggest winners will be 2013’s duds. New “winners” will emerge, and there are stocks that had a good run this year, but have further to go.
One strategy for investors to employ under these conditions would be to buy a partial position in a stock they want to own, but feel it could be bought at a lower price after a market correction. If it goes higher, they are still making money. If it goes lower, they can average their cost.
Likewise, if an investor feels a position is vulnerable but believes it could still go higher, he can sell off part of the position. If it goes higher, sell the rest. If it goes lower, the higher sale averages out the shares sold at a lower price.
As simplistic as this strategy is, it is easy to overlook under pressure.
Investor’s first read– a daily edge before the open
DJIA: 16,478
S&P 500: 1,841
Nasdaq Comp.:4,156
Russell 2000: 1,161
Monday, Dec. 30, 2013 9:13
I AM GOING TO REPEAT THE FOLLOWING TO MAINTAIN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.
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 7.3% 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 New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns. All on the drawing board.
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: $560.09) Positive.
Consolidating its $21 surge four days ago and may be subject to last minute profit-taking. Stock can hold here, though in a down market it can slip to $556. Resistance is $566 – $568. This looks like a normal correction which should be reversed within days.
Facebook (FB:$55.44) Positive
Keeps breaking basic support levels. Selling is most likely coming from profit-takers after an 83% surge starting in late November. Friday’s big drop was also in sympathy with Twitter’s (TWTR) 13% plunge, which was triggered by a downgrade Friday by Macquarie Capital to underperform from neutral with a target of $46. FB should find buyers at $55 – $55.50.
IBM (IBM:$185.08) Positive
As expected there was too much resistance in the $186-$187 area to enable IBM to rise further and especially after a $14, nine-day up-move. Support is $181 – $182.
Pulte Homes (PHM: $20.07) Positive
No change:The housing industry must now demonstrate it can gain traction. Support is now $19.50. Stock has had a pattern of sharp price jumps followed by a consolidation and pull back. Ran into selling above $20. Needs a breather after its 6-day run from $17.75. Support is $19.75.
First Solar (FSLR:$55.26) Neutral, needs move across $58 to turn positive.
Most of the action here was at the open after which FSLR gave back most of its gain.
Stock needs a credible institutional research report to assure investors FSLR’s fundamentals are not following China’s track. Still reflecting uncertainty about its fundamental outlook. Needs a high volume move across $58. Down 17% from its $66 high, stock should attract more buying.
Nike (NKE:$78.16) Positive
Got some badly needed buying Thursday and at the open Friday with a move to $79, but failed to hold the gain. Stock should hold at $78, but this time of the year, who knows ?. Move across $79 would improve pattern and pave the way for an attack of 52-week high of $80.28.
Hewlett-Packard (HPQ:$28.19) Positive.
Attempt to breakout and run failed Thursday, and is now digesting that move.
but pattern is positive. Support is $27.40.
Polaris Inds. (PII:$43.33:) Positive
Buyers persistent, stock can go higher, but ran into a wall Friday at $144.84. Support is$141.60 – $142
Amazon (AMZN: $398.08) Positive
Got hit by sellers at $405, preventing a breakout and run across $410.Resistance is now $405. Support is $396.
Pandora Media (P:$27.66) Positive.
Friday’s sharp drop should find buyers at $28. Big difference of opinion on the Street on this one. Lots of volatility.
NEW ! NEW ! NEW ! – 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 cell in line with your tolerance for risk
ALERT LIST: If we get the correction I expect, I may have to make changes in some of these, or project support levels where they will be technically attractive again.
Align Technologies (ALGN:$57.20) Listed here (12/23) at $57.03
Gentex (GNTX: $33.02) Listed here (12/23) at $32.64
Netease (NTES: $78.46) Listed here (12/23) at $74.51
Spirit Airlines (SAVE: $44.88) Listed here (12/23) at $46.06)
Valeant Pharm (VRX: $113.60)Listed here (12/23) at $112
Dycom (DY:27.41) Listed here (12/23)12/23) at $28.05
Cognex (CGNX: $38.05)Listed here (12/23) at $36.09)
Salex Pharm. (SLXP: $89.41) Listed here (12/23) at $87.61
Natus Medical (BABY:$22.41) Listed here (12/24) at $22.80
Sierra Wireless (SWIR:$23.18) Listed (12/24) at $22.33
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
THE ECONOMY:
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:
Pending Homes Sales Ix. (10:00) Proj: Nov. +1.5 pct.
Dallas Fed. Mfg. Svy (10:30) Proj: N/A
TUESDAY:
S&P Case-Shiller Home Price Ix. (9:00) Proj:Oct. index vs. same for Sept. +1.1
Chicago PMI (9:45) Proj: Dec. index 61.5 vs. Nov. 63.0, vs. Oct. 65.9
Consumer Confidence (10:00) Proj: Dec. index 76.0
WEDNESDAY: Market Closed –New Year’s
THURSDAY:
Jobless Claims (8:30) Proj: N/A
PMI Mfg Ix.(8:58) Proj:N/A
ISM Mfg Ix. (10:00) Proj: Dec. index 56.8 vs. Nov. 57.3
Construction Spend (10:00) Proj: Nov.+1.09
FRIDAY:
Motor Veh. Domestic Sales Dec, 12,5 mil-unit rate
Total sales 16.0 mil-unit rate.
Fed speakers:
Plosser (12:45 p.m.)
Stein (1:15 p.m.)
Lacker (1:30 p.m.)
Bernanke (2:30 p.m.)
Plosser 5:00 p.m.
RECENT POSTS – 2013
Dec 13 DJIA15,739 “Best Six Months Ahead ? Not Without an Ugly Correction in
the Interim”
Dec 16 DJIA January 30 Taper ? If So, Fed Needs to Schedule a Press
Conference – a Tip off”
Dec 17 DJIA 15,755 Fed to Taper January 30 ? It Should, Here’s Why
Dec 19 DJIA 15,875 Taper Today=Sell Off Followed by a rally – No
No Taper=Rally Followed by a sell off”
Dec 23, DJIA 16,221 New Feature : “Technical “Alert” List.”
Dec 24 DJIA 16,294 Buyer Panic ? Or Seller Ambush ?
Dec 26 DJIA 16,357 Year End Opportunities
Dec 27 DJIA 16,479 January 2014 Profit-Taking Will Hit Certain Stocks
*Stock Trader’s Almanac;Get it ! This is the most comprehensive compendium of investing savvy between two covers I have ever encountered in my 47 years of writing about the market. Got my first in 1968. There you have it ! I’m an old duff, but I have programmed my computer (brain) with smarts gained from writing about the market in an unbelievably challenging stretch of market activity. I endorse the Almanac – It’s loaded with references, stats, valuable studies, and insight.
George Brooks
“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. Brooks may buy or sell stocks referred to herein.
