Bears Put to the Test

George Brooks |

TODAY: Yesterday’s early rally failed to follow through. While not a classic rally “failure,” where the market gives back all of the day’s gain, it suggested hesitancy to buy in face of  Q1 earnings reports.

   Visa (V) is trading down 7.5 points before the open in response to disappointing Q1 earnings. That alone will lop off 48 points from the DJIA.

   It is always tricky to get a read on the market during earnings season for the obvious reason. Little is expected for Q1 (projected at +0.7% for the S&P 500), so any stock  that “beats” by a lot will be rewarded as was Apple (AAPL) when it jumped 8% in response to a 7% rise in quarter earnings plus announcements to raise its dividend and split the stock 7 for 1.

Minor support is DJIA: 16,457, S&P 500: 1,873, Nasdaq Comp.: 4,125

Breaking those levels support becomes:

DJIA: 16,402, S&P 500: 1,864, Nasdaq Comp.: 4,097

Resistance at DJIA 16,530, S&P 500: 1,881, and Nasdaq: 4,158 need to be topped to renew the up move started 8 days ago.

   The bears will try to get something going on the downside today, failure to do so reinforces the bullish sentiment and belief that both the stock market and economy are about to enjoy a continued spring surge.

   WHAT COULD GO WRONG? RUSSIA. While its stocks, currency, and credit rating are getting slammed, it still may intervene in eastern Ukraine in support of pro-Russian Ukrainians.

   I hold to my belief that the market will surge in April well into May before a correction sets in, but a spring rebound out of a weather-beaten economy is a must to sustain a rise.

   The stock market has consistently hit a wall in May, primarily since it marks the end of the Best Six Months for owning stocks.*

HOUSING:

   Housing stocks got big buying yesterday in spite of poor industry reports. Some of that was short covering but it looks like bargain hunters couldn’t resist. (See below: “HOUSING STOCKS”)

   If new or existing home buyers think these rates are high, they should look back  in time to 6%, 8% and 10% rates. The reality is rates are going up and so are home prices. At some point, home buyers will have to buy or the market may be out of reach indefinitely.

Investor’s first readDaily before the open

DJIA:  16,501                                                                           

S&P 500:  1,878

Nasdaq  Comp.:4,148

Russell 2000:  1,144

Wednesday, Apri1  25, 2014      9:10 a.m.

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SELL in MAY, and Go Away ?

        NONSENSE! SELL IN MAY and STAY for one or more trading opportunities before November 1.

   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. 

   This is true, but as I have noted with the Best Six Months, a lot can happen in the interim.

   This bromide can’t be taken as a “given.” Of the 26 years I studied a “top” occurred in May on 10 occasions ranging from May 1 to May22.  Two occurred in June and two in July. No meaningful top occurred in 12 of the years studied.

   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.

   Studies like this have to have a cut-off date, but are really intended to be accepted with an open mind, i.e. as May 1 approaches, move closer to the exit mentally, and be ready to lock in some profits and raise some cash.

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   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. Yesterday, the U.S. announced it was sending 600 soldiers to Poland as a sign of support.

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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.

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 HOUSING STOCKS –

 Buying showed up on Wednesday in spite of  big drops in mortgage apps and New Home Sales, and even more so yesterday.  The Street may be on to something, this can’t all be short covering.  It may be betting on a spring recovery after a severe winter. Clearly, that would be a needed boost to the economy.

PARTIAL LIST: 

Beazer Homes  (BZH)   Thursday: $19.08 +0.35

PulteCorp ($PHM) Thursday $18.98 +0.41

Toll Brothers (TOL) Thursday $34.78 +1.12

KB Homes  (KBH) Thursday $16.51 +0.17

DR Horton  (DHI)   Thursday $23.13  +1.78

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THIS WEEK’s ECONOMIC REPORTS:

   For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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:

Chicago Fed. Nat’l Activity Ix. (8:30): Index for Mar. was 0.20 vs. 0.53 for Feb.

Leading Indicators (10:00): Up sharply in Mar. With better-than-expected increase of 0.8 pct. vs upwardly revised increase of 0.5 pct. in Feb. and 0.2 pct in Jan.

TUESDAY:

ICSC-Goldman Store Sales (7:45): Up 0.4 pct. for the Apr. 17 week vs. a drop of 0.3 pct the prior week.

FHFA House Price Ix.(9:00): Increased 0.6 pct. in Feb. vs.  a gain of 0.3 pct. in Jan..

Existing Home Sales (10:00): Still no activity, down 0.2 pct. in Mar. vs. a drop of 0.4 pct in  Feb.   Year/year were down 7.5 Pct.

Richmond Fed Mfg. Ix. (10:00): Feb. index up to7 vs. minus 7 in Jan. and minus 6 in Dec..

MBA Purchase Apps (7:00): Apps declined 3.0% in the Apr. 18 week, refi’s dropped 4.0%.

PMI Mfg. Ix. (9:45): Mar. was 55.4 vs. 55.5 in Feb., but New Orders jumped to 58.9.

New Home Sales (10:00): Plunged 14.5pct. in Mar. to an annual rate of 384,000.  The median price rose 11.2% to $290,000. Year/year new home prices  are up 12.6% compared to  a decline of 13.3% in sales.

THURSDAY:

Jobless Claims (8:30): Up 24,000 to 329,000 for the Apr.18 week.

Durable Goods (8:30):  Up 2.6% in Mar. vs. a gain  of 2.1% in Feb..

Kansas City Fed Mfg. Ix.(11:00): March index was 10 vs. 8 in Feb. vs. 5 in Jan.. Production Index for Mar. was 22 vs. 3 in Feb..

FRIDAY:

PMI Services Flash (9:45):

Consumer Sentiment (9:55):

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RECENT POSTS:

Apr 8   DJIA   16, 245 Buying Opportunity Possible Early Monday

Apr 9   DJIA   16,256  April Opportunity Looms

Apr 10 DJIA   16,437  Swing Factor: Q1 Earnings, Spring Rebound

Apr 11 DJIA   16,170  Computer Selling = Scary Plunge = Opportunity

Apr 14 DJIA   16,026 Spring Surge Still in the Cards

Apr 15 DJIA   16,173  Selling Climax Still to Come ?

Apr 16 DJIA   16,262  Reversal – the Start of the Spring Surge ?

Apr 17 DJIA   16,424   Beware – Earnings Distortion

Apr 21 DJIA   16,408  A Very Important Week for Stocks

Apr 22 DJIA   16,449  Stock Market – Coiling Spring ?

Apr 23 DJIA   16,514  Today – a Test for the Bulls

Apr 24  DJIA  16,501  Surge in Stocks – Is Economy Next ?

*Stock Trader’s Almanac

A Game-On Analysis, LLC publication

George  Brooks

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

Brooks007read@aol.com

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 risk in mind.

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
KBH KB Home 15.11 0.03 0.20 1,395,945
AAPL Apple Inc. 109.87 0.38 0.35 19,441,904
BZH Beazer Homes USA Inc. 13.31 0.37 2.86 676,761
TOL Toll Brothers Inc. 29.45 0.31 1.05 1,653,900
V Visa Inc. 75.58 0.15 0.19 9,989,453
DHI D.R. Horton Inc. 27.28 -0.03 -0.11 3,095,607
PHM PulteGroup Inc. 18.37 -0.02 -0.11 2,632,344
MTRT Metal Arts Co Inc 0.01 0.00 0.00 0

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