Bull Market - the Pressure to Act!

George Brooks |

SUMMARY:

   The stock market had a lot of economic reasons to fall out of bed last week, especially with such dire news coming out from the housing industry, a vital cog in our economic recovery (see below).

   The market stalled, but didn’t fall apart, suggesting  underlying strength, even  though a consolidation would be healthy.

   How much of the economy’s softness is due to the horrendous winter weather that has buried consumers and industry in so much of the country ?

   The stock market is telling us weather is a big factor, which means investors must get ready for an abrupt change when warmer weather breaks out. Psychologically, this change stands to have a huge impact on consumer and investor attitudes.

Supportis DJIA: 16,020 (S&P 500:1,827).

Resistancestarts at DJIA: 16,144 (S&P 500:1,843). Breaking that, the next hurdle would be DJIA 16,186 (S&P 500: 1,850).

Investor’s first reada daily edge before the open

DJIA:  16,103

S&P 500:  1.836

Nasdaq  Comp.: 4,263

Russell 2000: 1,164

Monday, February 24, 2014, 2014   9:12 a.m.

PRESSURE TO DO SOMETHING!

   The pressure to find a new stock to buy is always greatest after a sharp  move up in the market and especially if you missed buying a stock at lower levels.  Who wants to miss out on yet another move up ? 

      A lot of the problem here is human nature.  When the market or a stock drops, it is normal to postpone buying because it looks like it will drop a bit more, ergo – nothing done.

   When the market, or a stock  shoots up, it is normal to think it can go higher, ergo the tendency is to rush in and buy it and risk over-paying. Buying because you are afraid of missing a move is one of the major contributors to poorly timed investments.  But, who can blame you, it’s a normal human reaction.

   As you are most likely experiencing right now, finding new buys after a bull market has posted such huge gains is challenging to say the least.

   It gets worse when you look at a long-term price chart showing what a stock could have  been bought at a year or two ago.

   Bull and bear markets tend to run to extremes and this bull is acting like it will do just that, ending in a speculative blow-off with low priced stocks luring the small investor off the sidelines to be slaughtered once again after selling  in early 2009 at the bottom and sitting on the sidelines for five years.

    Odds favor this bull running much further, but not in a straight line.

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HOUSING STOCKS RISE ON BAD NEWS:

   Housing stocks responded positively last week to bad news, including the

 Housing Market Index, MBA Purchase Apps, and Housing Starts and Existing Home Sales.

  The following housing stocks were included here to track  the impact of ugly industry data which could be skewed by adverse weather conditions in the Midwest and Northeast.

   If the stocks held up well in face of expected horrendous data, it could  indicate the Street believes the slump is temporary. If true, this would be good news for the economy as a whole, since  housing is critical to the extension of the economic recovery.

   Existing Home Sales were reported Friday, showing a January drop of 7.1% in the Midwest and a 3.1% drop in the Northeast, both hammered by winter storms.  However, weather cannot be blamed  for the 7.3% drop in existing home sales in California.

   After a week of lousy data, the housing stocks  failed to tank. The consensus blames bad weather for at least a good part of the bad news. The ability of housing stocks to hang tough, even rally Friday bodes well for the industry and the economy which is dependent on this critical sector for its momentum going forward.    

 

Beazer Homes(BZH: 2/14/14 - $21.26): Turning up after dropping from  a January high of $25.34  Friday close: $21.49

 PulteCorp (PHM: 2/14/14 -$20.02): Solid Friday performance, extending recovery from an August low of $14.23.  Friday’s close: $20.37

Toll Brothers (TOL: 2/14/14 - $37.79): High volume breakout Friday from consolidation after  basing out between April and October in the $30 area. Friday’s close:$38.19

KB Homes(KBH: 2/14/14 - $19.03):Grinding out a recovery within a consolidation after Mid-December bottom.  Friday’s close: $19.00

DR Horton(DHI: 2/14/14 - $23.62): Recovering from a September – November base at $18 after a drop from its May, 52-week high of $27.45. Friday’s close: 23.65

   .

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A  BEST SIX MONTHS to own stocks – No more corrections ???

   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.

   The Almanac’s  “Best Six” goes back to 1950..  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.

  The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1

   Is this going to be another “BEST six months to own stocks ? .   So far, the DJIA is ahead  4.9% since October 31, 2013 even with a 7% correction in the interim. 

   Over of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best year up 25.6% (1998 – 1999).

   With the market off to a great start in October , it looked like  a BEST six months was a no-brainer. This concerned me, since my research indicated that

prior to the January –February correction, I warned over the last 25 years, there have been 14 corrections ranging between 6% and  16% during this November1  to May1 period. Seven of those started in January, two in December and four in February.

  We have had one correction so far since October 31, another correction is possible, but unlikely. 

   Over the last 25 years, only two corrections occurred during the November 1 to May1 six months.  In 2002 there was a 6.2% correction in January and a 6.5% correction in March/April.  In 2003, there was a 7.0% correction in Nov. 2002/December 2002 and  a 12.9% correction in January/March of 2003.

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JANUARY BAROMETER

As January goes, so goes the stock market for the year, according to the January Barometer (JB).* The 3.6% drop in the S&P 500 in January suggests a very challenging year for investors and clearly not as rewarding as 2013 when the S&P 500 rose 29% after a 5.8% rise in the preceding January.

   The JB boasts an 89% accuracy rate over the years with most of its misses explained by unpredictable events, such as war and  extreme bull/bear turning points.

   The rationale for the JB  having predictable value is that a new year is accompanied by year-end and new year portfolio adjustments and decisions based on  projections for the year ahead. It is also a time when institutions receive a lot of new money that must be put to work.

So far in 2014: The S&P 500 is still down  but half as much at a minus 1.6%.  However since January 31, its up 2.1%.  Conclusion: As a barometer, it still suggests a  challenging year for both bulls and bears.

 

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THE ECONOMY:

The economic calendar  is loaded this week with both economic and housing reports.

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.”

MONDAY:

Chicago Fed. Nat’l Activity Ix.(8:30)

PMI Services Flash (8:58)

Dallas Fed Mfg.(10:30)

TUESDAY

FHFA House Price Ix. (9:00)

S&P Case-Shiller Home Price Ix.(9:00)

Consumer Confidence (10:00)

Richmond Fed. Mfg. Ix.(10:00)

State Street Investor Confidence Ix.(10:00)

WEDNESDAY:

MBA Purchase Apps.(7:00)

New Home Sales (10:00)

THURSDAY:

Durable Goods Orders(9:30)

Jobless Claims (8:30)

Bloomberg Consumer Confidence Ix.(9:45)

Fed chief Yellen speaks (10:00)

Kansas City Fed. Mfg Ix.(11:00)

FRIDAY:

GDP – second est. Q4 (8:30)

Chicago PMI (9:45)

Consumer Sentiment (9:55)

Pending Home Sales(10:00)

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RECENT POSTS:

2014

Feb 4    DJIA 15, 372  A Rally !  How Far ?

Feb 5    DJIA  15,445  Slower Economy to Delay Further Fed Taper ?

Feb 6    DJIA  15,440 Will BIG Money Step In or Step Aside ?

Feb 7    DJIA  15,628  Easy Does It – Rally Failure Possible

Feb 10  DJIA  15,794  Critical Week for Bulls

Feb 11  DJIA  15, 801 Market Crossroads – Up ? or Down ?

Feb 12  DJIA  15,994  Bulls in Charge, but……….

Feb 13  DJIA  15,963 Suddenly, Concern for the Economy

Feb 14  DJIA  16,027 Buyers Panicking ?

Feb 18  DJIA 16,154  A Brief Pause or More Upside ?

Feb 19  DJIA 16,130  Can Market Shake Off Ugly Housing Data ?

Feb 20  DJIA 16,040 Winter Slump – Spring Rebound ?

Feb 21  DJIA 16,133 Housing Hanging Tough – a Harbinger ?

  George  Brooks

“Investor’s first read – an edge before the open”

*Stock Trader’s Almanac

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.

 

 

 

 

 

 

 

 

 

 

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