Expect another mixed open. The market is reflecting a tug of war between bulls and bears. The bulls are money managers who must put cash to work in stocks, because that is what their clients expect them to do; the bears are wary of uncertainties accompanying the Congressional/White House bru ha ha over raising the debt ceiling and cutting spending, the latter something Congress failed to deal with over the last 16 months.
Near-term, the bulls have a slight edge, since Wednesday’s resolution of the tax issue removes some uncertainty from the markets, even though it sets up greater uncertainties a month or two down the road.
This is the time of the year for annual forecasts, something I never had much time for. Too much can happen in a year’s time to alter the picture. If you are going to march to someone’s drumbeat, be sure you can monitor their outlook month to month in case they change their mind in line with changing conditions.
Unfortunately, all too often egos intervene to prevent a change in a forecast. This is not a business where one can afford the luxury of delusion, score is kept every day.
DJIA: 13,391,36
S&P 500: 1,459.37
Nasdaq Comp.: 3,100.56
Russell 2000: 872.60
Friday, January 4, 2013 (8:58 a.m.)
JANUARY BAROMETER
There is a seasonal indicator with a good record. It’s the January Barometer (JB), developed 40 years ago by Yale Hirsch, Stock Trader’s Almanac.
This is an annual reference every serious investor should have.
In short, as January goes, so goes the market for the year, generally speaking.
Essentially, the logic behind the JB is that institutions tip their hand as the new year unfolds with the execution of a decidedly bullish or bearish strategy which is reflected in stock prices in January.
A word of caution, all indicators should be viewed with an open mind. While the Almanac boasts an 88.7% accuracy rate for the JB over 62 years, any number of things can happen to change the market’s direction to challenge the JB’s forecast.
Since the big jump in stock prices on January 2nd’ was largely the result of the decision by Congress avoid a plunge over the fiscal cliff, the JB’ forecast may be distorted this year. Congress could have made a decision in 2012, depriving January of its jump-start.
Why wait for the results of the full month when the first five days of January can give an advance for the market’s direction in January. This “early warning” indicator sports an 84.6% accuracy rate,
Here again, the risk of distortion comes in to play.
You will read and hear about the JB in coming weeks, respect its time-tested accuracy, but keep an open mind.
We have the need for an increase in the nation’s debt ceiling in order to pay bills already approved and contracted for. Until the summer of 2011, it was a ho-hummer, with 8 approved raises over the last 10 years, 85 over the last 100 years. Hostilities in Congress got so ugly in 2011, the DJIA tumbled 12% in7 days following a decision to raise the debt limit. S&P lowered its credit rating for the U.S. government.
I see no reason why we won’t get round two in February/March. We crossed the line January 2, but the Treasury has enough wiggle room to buy a couple month’s time.
A POSITIVE NOTE:
While I am bearish about the early months of 2013, the year can produce a lot of attractive opportunities, just at lower prices.
The U.S. economy has recovered from the worst recession/bear market since the 1930s. We survived, and that is huge.
Housing is in recovery mode, increasing homeowners’ “wealth effect,” corporations are flush with cash and hopefully the 113th Congress can resolve key spending issues, setting the stage for a sustainable recovery beyond the current one.
I see an interruption to the bull market that started in March 2009, but which has not fully run its course. Individual investors are largely absent, but they will return to buy near the end of the bull market when speculation ramps up. That can be a year or two out.
BOND MARKET:
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos. As the tensions from European sovereign debt woes abate, money will flow out and into stocks where a better return is hoped for.
APPLE (AAPL: $542.09)
AAPL hit a wall Wednesday at $555 shortly after the open as traders clipped a short-term gain and 2013 sellers stepped in to take advantage of this week’s sharp move up. A further slide to $532 is likely today/Monday.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $27.77):
Once again FB tried to punch through resistance between $28 and $29. If successful, $30 -$31 is the next stop. It may need a slip back to $26.80 first.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help out targeting a bottom as with FB. I don’t have a position in the stock, long or short.
ECONOMY:
Note: I am going to list the economic reports will not include the numbers from the last report, since those numbers are often revised significantly and therefore potentially misleading.
I suggest you access the website: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.
THURSDAY:
ADP Employment Rpt. (8:15)
Jobless Claims (8:30)
FRIDAY:
Employment Situation (8:30)
Factory Orders (10:00)
ISM Non-Mfg. Ix. (10:00)
*Stock Trader’s Almanac: The new one is out – get it !
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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.
