The Bulls blinked and the Bears took charge yesterday as evidence of an economy rebounding from a deep freeze was slow in coming this week.
But just as the Bulls needed a goose from the economy to ramp up a head of steam, the Bears are going to need bad news to crush the market from here.
Without it, all I can see now is the possibility of a “technical” correction down to DJIA 16,135 (S&P 500: 1,833).
Today’s resistance starts at DJIA 16,526; S&P 500: 1,878 and Nasdaq Comp.: 4,089.
There has been a lot of “corrective” action in stock prices this year, which has been masked by the publicity the financial press gives the market every time it rebounds to the new high area.
If yesterday’s lows are penetrated, I can see a spike down. I also see a good possibility of that downward spike getting reversed late in the day buy buyers.
Failure to hold above DJIA 16,400 calls for a further drop to 16,345.
Failure of the S&P 500 to hold above 1,865, calls for a further drop to 1,853.
Failure of Nasdaq to hold above 4,040 calls for a further drop to 4,024.
Head & Shoulders Nasdaq Update:
Investor’s first read– Daily edge before the open
DJIA: 16,446
S&P 500: 1,870
Nasdaq Comp.:4,069
Russell 2000: 1,095
Friday, May 16, 2014 RELEASED Thursday evening
Last Friday, I called attention to a prospective “Head & Shoulders” top formation, but warned readers to be careful, that it could abort to the upside.
I also noted the same pattern did not exist in the DJIA, S&P 500, and Russell 2000.
While the Nasdaq posted several strong days earlier in the week, selling picked up in all markets Thursday and a worst case breakdown to the 3,550 area is possible if the 4010 level is broken. Bear in mind, this group has been battered for more than two months.
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Sell in May and Go Away ??
A popular jingle this time of the year for newsletters and journalists.
May has offered a number of timely exits, but I don’t buy the “stay away” part, clearly not until November.
Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). Obviously, the message here is of the two six month periods, May to November is the worst for stocks.
This is true, but as I have noted with the Best Six Months, a lot can happen in the interim.
This bromide can’t be taken as a “given.” Of the 26 years I studied a “top” occurred in May on 10 occasions ranging from May 1 to May 22. Two occurred in June and two in July. No meaningful top occurred in 12 of the years studied.
On far too many occasions over the last 26 years a May top was followed by a decline, but within months (well before Nov. 1) the market rallied sharply. I see it more as a trading opportunity – i.e. “Sell in May,” but be ready to buy back after a plunge.
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HOUSING:
We cannot have a robust economic recovery from the severe winter months without a rebound in housing. Such a rebound would likely be preceded by an up-move in housing industry stocks.
Trading in the following stocks has been generally upbeat in recent days, though there is still a seller out there to put a lid on attempts to run. IN SPITE OF A NASTY PLUNGE IN THE MAJOR MARKET AVERAGES AND A BAD HOUSING MARKET INDEX REPORT, FOUR OF THE FOLLOWING HOUSING STOCKS CLOSED AT THEIR HIGHS FOR THE DAY AFTER GETTING HIT HARD EARLIER, THE EXCEPTION BEING BZH.
Was this short covering or savvy investors ?
So far the numbers are not encouraging, but a sharp drop in long-term interest rates could pull mortgage rates down triggering increased housing activity. We didn’t see it in The Housing Market Index for May reported yesterday which came in at 45 four points below forecasts. This indicates a continued stall in the new home market. While expectations for future sales are strong, up a point to 57, “traffic” lags, which suggests a lack of participation by first-time homebuyers and emphasizes the importance of all-cash buyers.
PARTIAL LIST :
Beazer Homes (BZH) Monday $18.74
PulteCorp ($PHM) Monday $18.82
Toll Brothers (TOL) Monday $34.17
KB Homes (KBH) Monday: $15.85
DR Horton (DHI) Monday: $2225
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THIS WEEK’s ECONOMIC 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.”
TUESDAY:
NFIB Small Business Optimism (7:30): Surged 1.8 points to 95.2, highest since 2007.
ICSC Goldman Chain Store Sales (7:45): Mixed for May 10 week at minus 0.1
pct., but y/y up 3.9 pct.
Retail Sales (8:30): Rose only 0.1 pct. In April following March’s 1.5 pct. surge
Import/Export Prices (8:30): dopped 1.0 pct. Vs. increase in Mar. prices dropped
0.4 pct. In Apr. to reverse 0.4 pct. Gain in Mar. Export prices dropped
1.0 pct. Vs. increase of 1.0 pct. Mar.
Business Inventories (10:00): Rose 0.4 pct. In Mar. vs. a 1.0 pct rise in sales.
Inventory/sales ratio is 1.30.
WEDNESDAY:
MBA Purchase Apps (7:00): Up 1.0 pct. In May 9 week after rise of 9.0 pct. The prior week. Refi’s rose 7.0 pct. Vs a rise of 2.0 pct the prior week.
PPI FD (8:30): Apr. up 0.5 pct. vs. rise of 0.6 pct. in Mar.
THURSDAY:
CPI (8:30): Up 0.3 pct, Apr. vs. +0.2 pct. Mar. ex-Food engy +0.2 pct. Apr unchg
Jobless Claims (8:30): Down 24,000 to 297,000 May 10 week
Empire State Mfg. Ix. (8:30): Index 1.29 Apr. vs. 5.61 Mar and 4.45 Feb
Industrial Production (9:15): Down 0.6 pct in Apr. vs. a gain of 0.9 pct. in Mar..
Philly Fed. Svy (9:55): Index posted another strong month in May. While at 15.4 it was below April’s 16.6, it was well above projections at 14.3.
Housing Market Ix. (10:00): (See above)
FRIDAY:
Housing Starts (8:30):
Consumer Sentiment (9:35)
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RECENT POSTS:
Apr 30, DJIA 16,535 Sell in May and Go Away ??
May 1 DJIA 16,580 Money Manager Dilemma – Plunge Now
May 2 DJIA 16,558 Big Move in the Offing ?
May 5 DJIA 16,512 Bear Calling Bulls Out
May 6 DJIA 16,530 Wild Ride to Continue
May 7 DJIA 16,401 Tech Headed For Slaughterhouse – Huge Selling Climax
Buy Looms
May 8 DJIA 16,518 Major, Major Bull/Bear Crossroads
May 9 DJIA 16,550 Head & Shoulders Top Nasdaq ?? Careful !
May 12 DJIA 16,583 Market Really Wants to Run, but…..
May 13, DJIA 16,695 Bulls in Wings – Market Needs a Spark
May 14 DJIA 16, 715 What Could Spark a Surge or Plunge
*Stock Trader’s Almanac
A Game-On Analysis, LLC publication
George Brooks
“Investor’s first read – a daily edge before the open”
Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is 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. References to specific securities should not be construed as particularized investment advice or as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
