Bull Market - a Perpetual Machine ?

George Brooks |

There are times when getting a read on the direction is simple, rather than difficult. As I noted Monday, “There are simply more buyers than sellers.”
So who needs a host of indicators, charts, input the Street’s best and brightest when buyers are driven to accumulate stocks pushing prices relentlessly higher?

And there are times when the less a person knows, the better off they are.

Mid-to late stage bull markets are characterized by these conditions. By that time, much of the “wall of worry” has been climbed, confidence begins to replace fear, investors become more aggressive, and it becomes easier to make money..

An absence of a nasty correction in many months re-assures investors making money in the market is riskless; they chase rallies and are quick to buy on dips.

What I am saying is, there are times when this isn’t rocket science.

There are too many buyers to enable a correction, barring unexpected bad news.

Money managers must buy stocks. For one, that’s what clients pay them to do. For another, they cannot afford to see targeted stocks run away from them.
Most stock brokers have clients who are coming back into the market, newsletter writers are competing with other newsletter writers, and hedge funds are leveraging up.

Once they sell, profit-takers then have cash to reinvest. The perpetual machine. But investors get careless as the fever rises until the unexpected – a seemingly harmless correction, turns into a nasty correction when new negatives whack stock prices just when they seem ready for the next leg up.

That is what we are seeing – the good news is, the fever to buy escalates into a frenzy, the bad news is, many will get hurt in the end. Once a market tops out and turns down, investors view it as an opportunity and buy only to see stock prices tank big-time.

I believe this market has plenty of upside, but not in a straight run. The Street is getting a little too complacent.

TODAY: Corporate earnings will begin to hit the Street in coming weeks The stock of companies that fail to “beat” by a comfortable margin will get punished. That makes buying riskier than usual. Support: DJIA : 14,570 (S&P 500: 1,557). The Nasdaq Composite and Russell 2000 are lagging in this 3-day rebound.
Investor’s first read – an edge before the open
DJIA: 14,673.46
S&P 500: 1,568.61
Nasdaq Comp.: 3,237.85
Russell 2000:929.34
Wednesday, April 10, 2013 (9:14 a. m.)
SEQUESTER: I’m keeping this posted so you don’t forget the market may begin to worry about its impact.
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 to unemployment at the expense of 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: $428.98)
AAPL tested its support at $422 again yesterday and tested resistance at $428 before closing up a fraction for the day. It is trying to hold above $422, its pattern is a weak positive. A break above $428 turns the near-term pattern positive, a break below $422 indicates a test of $419, which is critical support, the last stop before a drop below $400.
I am not long or short AAPL.
FACEBOOK (FB - $26.59)
FB continued to digest the gains it posted over the 7-days ending Friday, finding buyers yesterday at $26.42. A drop below $26.40 would raise the chances of a drop to $26.10 where it should find buyers.
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.
I am not long or short Facebook.
This will be a light 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.
Treasury Budget (2:00)
FOMC Minutes (2:00)
Jobless Claims (8:30)
Import/Export Prices (8:30)
Producer Price Ix. (8:30)
Retail Sales (8:30)
Consumer Sentiment (9:55)
Business Inventories (10:00)
George Brooks
“Investor’s first read – an edge before the open”

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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