Best Six Months to Own Stocks? Not Without an Ugly Correction in the Interim

George Brooks |

(Editor's Note: This article was originally published at 9:23 a.m. ET)

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.  If MACD timing is applied with expertise the gains achieved during the Best Six Months can be remarkable, as Jeffrey Hirsch, Editor in Chief of the Almanac demonstrates.

   The Almanac’s  “Best Six” goes back to 1950.  What must be understood is, 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 A “BEST SIX MONTHS ?

   It could be, the DJIA has risen  3.6% between October 31 and its all-time high November 29, and is still ahead fractionally after a sharp correction.

  I did my own study of this six month period going back 25 years when institutional investing started to have a major impact on the market.

   Out of the 25 years, there were 19 up-years 3 flats and3 downers.  The good years averaged gains of  11.8%, the best (1998 – 1999) was ahead 25.6% .

WHAT MUST BE UNDERSTOOD HERE:

There were sharp corrections within the six month period including a number of the Best Six AND THAT IS MY WARNING FOR YOU HERE.  If this market starts to fly, be alert for a correction ranging from 5.5% to 16%.

  It is one thing to look at a period after it has passed and declare it as a winner or loser, but early on, how do you know how it will turn out. On a number of times what turned out to be a Best Six, were jolted in the interim by corrections (1996 – 1997, 1997 – 1998, 1998 – 1999, 2001 – 2002, 2003 – 2004).

  I will re-visit my study again with added insights.

THE FED:  A Tip off

   Any meeting when the FOMC announces a taper would have to be accompanied by a Fed Chair  press conference and business summary.  January’s FOMC meeting does not have that scheduled.  If the Fed were to suddenly schedule a press conference for January, it would be a tip off in advance.

FOMC meetings next six months:

December 17 – 18

January     29 – 30, 2014

March       19 – 20

April         29 – 30

June          17 – 18

July           29 - 30

TODAY:

Russell 2000 was up slightly yesterday, suggesting the behavior of the major indices DJIA, S&P, Nasdaq were getting hammered by profit taking and portfolio face lifts.

Many of these stocks will rebound swiftly leaving those slow afoot watching rather than owning.  If you have stocks you want tom own and they are sliding be prepared to pounce.

   Yesterday the rally at the open fell a bit short of my rally target and the day’s decline didn’t quite get to those targets either.

   Traders will be trying to position themselves for  the Fed’s decision next Wednesday. Resistance starts at DJIA 15,818 (S&P 500: 1,786). Risk is DJIA 15,595 (S&P 500: 1,761)

Investor’s first reada daily edge before the open

DJIA: 15,739

S&P 500: 1,775

Nasdaq  Comp.3,998

Russell 2000:  1,103

Friday, Dec. 13, 2013    9:20 a.m.

YEAR END UGLINESS:

We have entered the ugly part of year-end trading – accelerated profit-taking, where investors see good profits begin to wear away as others beat them to the punch. At the same time, stocks that have become attractive price-wise due to tax selling/portfolio adjustments begin to sneak up, now that the selling pressure is lifted.  Next thing, stocks of your buy list have jumped  quite a bit.

   WARNING:

   Nevertheless, DO NOT take your eye off what is happening, especially to overly depressed stocks. While you are shopping, enjoying lunch-time “cheer,” or scrambling for one thing or another, THINGS WILL be happening.  That stock you were planning to buy, but felt there was plenty of time to buy it, could easily rise 3% -4%, even in a down market. It’s happened to me too often.

Just a reminder: Anyone keeping track of the breadth of the market (advances/declines) should realize the year-end maneuvering will distort the numbers, often favoring decliners.

NOT  ROCKET SCIENCE !

This doesn’t have to be rocket science. Common sense and sensitivity to the emotions that are driving stock prices is key, because the level of the stock market, and stocks, is a matter of opinion. For proof, look at the varying levels and valuations the market and stocks reach over months, years.  Confidence  rules – too little, too much, a change for better or worse. Step back, ask, what drumbeat is the market marching to right now ? It would be nice to have a perfect formula for all the calls needed, but that would simply cause everyone to do the same thing at the same time,  negating its value.

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: $560.54) Positive.

Thursday’s reversal and Friday’s drop looked like a combination of selling into the news (China/iPhones) and selling into a strong market rally. Monday’s bounce  off $560 support improved AAPL’s pattern though Tuesday was disappointing. There has been a seller there Wednesday and Thursday. The current level, $560, is a  level where buying came in on six occasions in the past. In a nasty market environment, that level could give way leading to a further drop  $556. Just be aware that there are institutions  planning to buy, and this consolidation (and year-end selling) is what they are looking for.   So, AAPL may suddenly stabilize, or reverse after a spike down, and the stock is off and running. . 

Facebook (FB:$51.83)  Positive

 Will replace Teradyne (TER) on S&P 500 on Dec.20, which could be the reason for yesterday’s pop.  Probably some short covering in there, as well. Support $51.35, Resistance is $53.30

IBM (IBM: $173.37)  Negative  (ALERT!)

As I expected, IBM broke down yesterday and is testing  the October low of $172.57. Failure to hold there raises odds, Big Blue is headed for a selling climax in the low-to-mid $160s.

Pulte Homes (PHM: $18.06)  Positive

No Change:The  housing industry must now demonstrate it can gain traction. That may be in the works with the big jump in October’s New Home Sales. PHM should attract buyers in this area. if housing is a “go.” Stock has held twice in this $17.80 area. Failure takes it closer to $17.10. The housing industry could easily go into limbo – bump along.

First Solar (FSLR:$54.39)  Positive

Still reeling from the bad solar news out of China. Stock needs a credible institutional research report to assure investors FSLR’s fundamentals are not following China’s track.  Big volume at the close Wednesday and  after a spike down at the open yesterday suggests buyers are nibbling.   Support $54.  Resistance starts at $56.25

Nike (NKE:$76.23) “the inchworm”  Positive 

Profit taking has accelerated.  I am still uneasy about retail. This was a big drop for a stock that moves both ways  in tiny increments. It did this in October and reversed to the upside. Support at $75.50 held yesterday.  Resistance 77.40.

Hewlett-Packard (HPQ: $26.60)  Positive

No change: Consolidating  surge two weeks ago. Support at 27 did not hold and HPQ slipped to the next support level - $25.80 - $26.20.

Polaris Inds. (PII134.42:)  Positive

This erratic trading activity is characteristic of PII. Should find support at $133.30, though its volatility is so extreme, I wouldn’t rule out $131.60.

 Amazon (AMZN: $381.25) Positive

Has been down here a bunch of times. Further weakness in the market could take it to $373, however late day buying  indicates $381 may  have turned AMZN up. Resistance is $384 - $385.

Pandora Media (P:27.17) Positive.

Yesterday, I said P was like following a drunk driver.  More often than not, P gets hit by sellers every time it jumps sharply. In fact, a brief rally yesterday met with an anxious seller taking it down to $26.10 Minor support is $26.50. Resistance is $27.20

Definitely not a stock for light sleepers. Has its lovers and haters.

NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS

THE ECONOMY: 

A much lighter week this week.  The Street will parse words from Fred speakers Monday (see below)

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.”

THURSDAY:

Jobless Claims (8:30) Week end 12/7 claime up 68,000 to 368,000. May be distorted by seasonal adjusting.

Retail Sales (8:30) November were up 0.7 pct. vs a gain of 0.6 pct October

Import/Export Prices (8:30) 

Business Inventories (10:00) October inventories uo 0.7 pct., sales up 0.6 pct.

FRIDAY:

Producer Price Index (8:30) Nov.  -0.1 pct.

RECENT POSTS - 2013

Nov 25 DJIA  16,064  Fetch the Blinders – Here come the forecasts

Nov 26 DJIA  16,072   Time to Shop for New Winners and Old Winners Getting  

                                     Whacked by  Profit-Taking”

Nov 27 DJIA16,072   “December Head-Fakes Galore – Raises Risks”

Nov 29 DJIA 16,097  “Stock Market Bubbles Don’t Pop to a Full House”

Dec 2   DJIA 16.086  “Serious Stuff Coming This Week and Next”

Dec 3   DJIA 16,008  “Hunting Season – Be Armed and Ready”

Dec 4   DJIA 15,914  “Holidays, Or Not, DO NOT Take Your Eye Off This Market”

Dec 5   DJIA 15,889  “December’s Two Dilemmas – Watch Your Back”

Dec 6  DJIA 15,821   “No Fed Taper=December Rally – Correction Q1 ?

Dec 9  DJIA 16,020  “Investor Angst Intensifies”

Dec 10 DJIA 16,025 “ Two Big Dates Loom – What to Watch”

Dec 11 DJIA 15,973  “Year End Rally ?

Dec 12 DJIA 15,843  “Trading Opportunities Imminent – First a BUY – Then a

                                     SELL”

*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”

sensiblesleuth@gmail.com

……………………………………………..

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.

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
FB Facebook Inc. 115.40 0.30 0.26 25,070,364
IBM International Business Machines Corp 160.02 0.20 0.13 2,740,867
P Pandora Media Inc. 13.33 1.85 16.12 43,449,412
PII Polaris Industries Inc. 87.46 -3.26 -3.59 662,487
AMZN Amazon.com Inc. 740.34 -3.31 -0.45 3,561,307
NKE Nike Inc. 50.46 -0.19 -0.38 6,933,279
FSLR First Solar Inc. 30.15 0.01 0.03 2,311,128
PHM PulteGroup Inc. 18.31 -0.08 -0.44 4,023,126
HPQ HP Inc. 15.12 0.06 0.40 8,377,096
GPEOL Great Plains Ethanol C 5,500.00 0.00 0.00 0

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