Breakouts Should Be on Heavy Volume

George Brooks |

A breakout to new highs from a consolidation should have more oooommppf.
Maybe it’s because there are still so many doubters, maybe the unbridled enthusiasm will come at much higher levels. Maybe too many pros are expecting a correction.
Based on normal market behavior, a 3% - 5% correction should have happened by now, but there are so many institutional investors with nowhere else to invest their client’s cash.
Thursday’s breakout was not powered by much volume.
It’s bullish that the market averages could breakout on light volume, that sellers didn’t get in the way.
Nevertheless, I would expect the Street’s computers to be programmed to pounce on a breakout like this.
TODAY:
The charts of the market averages are upbeat, except for Thursday’s volume, which may have been light due to money managers bailing out early for the three-day weekend.
Volatility has been extreme in recent weeks with the stodgy DJIA ranging by as much as 150 points both ways within a day’s time.. If that is to continue, we are due for a temporary plunge to DJIA 14, 465 (S&P 500: 1,555), which would likely come after a brief spike up today.
This is a big week for economic reports (see below), especially the ADP Employment Report at 8:15 Wednesday and Employment Situation Report Friday at 8:30.
This bull market has room to run, but corrections WILL interrupt it along the way. They will come either unannounced or as a result of unexpected news, be prepared for both.
Investor’s first read – an edge before the open
DJIA: 14,583.30
S&P 500: 1,569.98
Nasdaq Comp.: 3,269.15
Russell 2000: 951.81
Monday, April 1, 2013 (9:16 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:
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.
Apple (AAPL: $442.31)
On Monday, AAPL hit $469, where it attracted a seller. It proceeded to plunge Tuesday, Wednesday and Thursday on very light volume, almost as if buyers suddenly sensed worse-than- presently-known news was on the horizon.
Currently, the Street is concerned about its product refresh cycle, criticism by the Chinese government and its legal battles with Samsung. However, it acts as if something else is spooking buyers.
I expected a sideways-to- down consolidation phase following its March 10% advance, but this market action resembles a bomb scare.
It should not fall with such ease if serious buyers are there. Yesterday, it hit $442 support. While it should find stability. The nature of its weakness suggests it can drop to $432 where it desperately needs to find aggressive buyers to avert a break of its March 4, $419 low.
Watch closely for the possibility of a one-day reversal from the $432 level, a high volume, rebound where the stock closes at $441, the high for the day. If no new negatives are lurking, that scenario is viable.

I am not long or short AAPL.
FACEBOOK (FB - $25.65) FB’s was unable to follow through on Wednesday’s sharp jump on Friday, which suggests a good part of that pop was short covering, which tends to be more hurried than when an investor accumulates a position. Expect more volatility in coming days. Obviously, neither shorts nor long buyers want the stock to run.
It should be a game of cat and mouse, each watching the tape for signs that the other will break ranks.
FB, like Apple, is especially news-sensitive. The ability of FB to monetize its base is debatable. On the positive, it already has a huge base of subs; at least, it doesn’t have to build that, but it must find ways to make money from that base – management must assure the Street it can do just that, and maybe only time will tell.
So, where has the selling come from ?
Possibly from IPO investors whose shares came out of lock-up, the latest being 777 million shares freed up in mid-November. .
That would be good news, since no one can blame them from raising cash for other purposes, even if they could get a higher price in the future. If they genuinely feel the stock is not worth the mid-20s, FB’s stock has a problem.
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.
Support is now $25, resistance is $25.90.
I am not long or short Facebook.
ECONOMY:
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.
MONDAY:
PMI Mfg Ix. (8:58)
ISM Mfg. Ix. (10:00)
Construction Spending (10:00)
TUESDAY:
Factory Orders (10:00)
WEDNESDAY:
ADP Employment Report(8:15)
ISM Non-Mfg. Ix. (10:00)
THURSDAY:
Jobless Claims (8:30)
FRIDAY:
Employment Situation Report (8:30)
International Trade (8:30)
Consumer Credit (3:00 p.m.)
RECENT POSTS: 2013
Mar 14 DJIA 14,445 “What Do Institutions Do When the S&P 500 Hits a New All-Time High ?
Mar 15 DJIA 14,539 “New All-Time High for S&P 500 Today ? Apple Finally Turning the
Corner ?
Mar 18 DJIA 14,514 “How Quickly Will Bulls Pounce on Lower Prices ?”
Mar 19 DJIA 14,452 “Correction More Technical Than Cyprus-Related”
Mar 20 DJIA14,455 “Stubborn Bull”
Mar 21 DJIA 14,511 “Bulls Need to Pick It Up Here to Avoid Correction”
Mar 22 DJIA 14,421 “Volatility-Whipsaw Trading Returns”
Mar 25 DJIA:14,512 “Bulls’ Momentum Unchecked – So Far”
Mar 26 DJIA 14,447 “Are Bulls Tiring ?
Mar 27 DJIA 14,559 “Has Market Discounted Possible International Crisis ?”
Mar 28 DJIA 14,526 “Stocks – The Only Option For Institutions”
George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com
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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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