Tuesday, February 28, 2012 9:19 a.m. ET
DJIA: 12,981.51 S&P 500: 1367.59
An attempt to sustain a decline yesterday was short lived as buyers stepped in after the DJIA dropped 100 points, erasing losses and closing unchanged for the day.
This is classic bull market behavior. So far, the news media and speculators’ hype about rising gasoline prices haven’t deterred buyers.
TODAY: A drop off in aircraft orders contributed to a sharper than expected decline in Durable Goods (4%) for January reported at 8:30. The report pared a pre-market rise in U.S. stock-index futures. Transportation equipment dropped 6.1% reflecting a 19% decline in civilian aircraft equipment, however auto bookings were ahead 0.9%. Some of the decline in durables may be seasonal, as Q1 non-military durables tend to decline in early Q1, or have done so in five of the last 8 Q1s. A test of near-term support at DJIA 12,900 (S&P 500: 1357 likely. There is an outside chance the market will be able to shake off the Durable Goods report and higher gasoline prices and advance. That would be very bullish.
DOW 13,000 shouldn’t be any more significant than DOW 12,750 or any other number even though it has denied meaningful penetration over the last five days. Perhaps the Street’s computers are programmed to do some selling there. If analysts and the press make enough noise about its formidability, it will become a hurdle.
What do money managers with a list of buy orders care if the DOW is 12,957 or 13,233 ?
CONCLUSION: I see a 5% to 7% correction/consolidation coming before early April. Today would be as good as any for that to start, but pre-open action suggests the durable Goods report hasn’t jolted confidence. Maybe the Street needs to crunch some numbers in more detail.
The importance of being ready for a correction would be that – one, investors lock-in some quick, undeserved gains ahead of the correction and have cash available to capitalize on lower prices, and two, that they recognize it as an opportunity when stock prices fall back.
Again, I scanned hundreds of stocks over the weekend and found many had recently had sharp run ups, suggesting the need for a correction or sideways consolidation to enable sellers to get out of the way for another upleg. These prices will pull back if buyers back away, not willing to pay up for a stock that has recently soared.
Chart patterns, especially breakouts on unusually high volume [UHV] “are working,” which means investors are anxious to pounce.
ECONOMIC REPORTS: As long as U.S. economic indicators signal recovery, these reports are only a minor driver of stock prices. Should they soften, the market will go into a nasty correction.
- Pending Home Sales (10 a.m.) Fell in Dec. after 7.3 pct. gain in Nov. and 10.4 pct. gain in Oct. Year on year sales gained 5.6 pct.
- Durable Goods (8:30 a.m.) rose 3 pct. in Dec. after 4.2 pct rise in Nov..
- S&P Case Shiller Home Price Index (9 a.m.) Dropped 0.7 pct. in Nov. for sixth time.
- Consumer Confidence (10 a.m.) dropped to 61.1 in Jan. from 64.8 in Dec.
- GDP (8:30 a.m.) for Q-4rose 2.8 pct. from Q3’s 1.8 pct., but most of rise was accounted for by an increase in inventories.
- Chicago ISM ( 9:45 a.m.) regional manufacturing dropped 3 points to 60.2, but is well above the “50” threshold for growth.
- Beige Book (2 p.m.) comments follow regarding economic outlook. It is released two weeks before FOMC meets.
- Motor Vehicle Sales (time: ?) Auto sales jumped 13.8 pct in Jan., trucks declined 4 pct. the first time in nine months autos outsold trucks.
- Jobless Claims (8:30 a.m.) Were unchanged for week ending Feb. 18
- Personal Income and Outlays (8:30 a.m.) P.I. increased 0.5 pct in Dec. following a 0.1 pct increase in Nov.
- ISM Manufacturing Index (10 a.m.) Rose one point in Jan. to 54.1 thanks to new orders which were up 2.8 pct.
- Construction Spending (10 a.m.) Jumped 1.5 pct. on top of a November increase of 0.5 pct..Private nonresidential outlays were ahead 3.3 pct..
Feb. 6 DJIA: 12,845 "Follow the Money as It Exits Safe Havens"
Feb. 7 DJIA: 12,878 "Market Held Up By Sneaky Buying"
Feb. 8 DJIA: 12,883 "Is It Safe For Bulls to Come Out and Play?"
Feb. 9 DJIA: 12,890 "BIG Money Buying the Future"
Feb. 10 DJIA: 12,801 "Can a Greek Deal Be Accomplished Over the Weekend?"
Feb. 13 DJIA: 12,874 "Easy Does It! Some Selling Into Good News Expected"
Feb. 14 DJIA: 12,878 "Investors Should Expect “Market Churn”"
Feb. 15 DJIA: 12,780 "Market Churn to Include Brief Correction"
Feb. 16 DJIA: 12,904 "Another Snag in Greek Bailout + Long Weekend = Extended Correction"
Feb. 17 DJIA: 12,949 "Investors Establish Bullish Turf"
Feb. 21 DJIA: 12,965 "The Market’s Stall is Deceptive While Selected Issuers Could Hum"
Feb. 22 DJIA: 12,938 "Rotation of Strength: Continuing Opportunities as Market Averages Remain Sluggish"
Feb. 23 DJIA: 12,984 "Market Stall Masks Opportunities"
Feb. 24 DJIA: 12,982 "Speculators Hyping $4 Gasoline by Summer"
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.
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