I headlined yesterday’s post, “Market Crossroads – Up ? or Down ?” The market responded emphatically with solid gains across the board, exceeding my projections for the day, which were anything but conservative. .
I expressed my concern for how easily the blue chip DJIA and S&P 500 dropped between January 21 and February 5, giving the benefit of the doubt to the bulls.
Even so, the market rose well beyond my “projected resistance” levels for the day.
The DJIA recouped close to two-thirds its 2014 loss, but the S&P 500 and Nasdaq Composite recouped far more than two-thirds, blowing through levels that should produce enough sellers to stop the advance.
This action is atypical of the norm. I can only conclude the market was ripe for a correction; a number of investors opted to take profits in the 2014 tax year; and concerns for China’s economy, turmoil in the Emerging Market currencies and Fed taper produced a vacuum which enabled stocks to drop abruptly, all of which facilitated an easy recovery.
Fed Chief Janet Yellen’s testimony before the U.S. House Finance Committee can be credited with some of that recovery though there shouldn’t have been any surprises.
Short covering deserves some credit, but a good part of the advance was institutions scooping up the bargains that a 7% drop in prices produced in late January and early February.
CONCLUSION:
Nine days ago investors regretted not locking in gains after a 29% rise in the S&P 500 in 2013. Worse yet, they agonized over whether they should be selling after a 326-point plunge in the DJIA on Monday, February 3.
Now, after a sharp rally, investors agonize over whether to BUY.
The risks of going “all-in” or “all-out” at any one point in time are high. Risk can be reduced by being selective and taking only a “partial” position, rather than a full one. This enables one to participate in an advance, but be less vulnerable in the event of a decline. What’s more, it tempers the urge to “do something” because the market is rising.
Support is DJIA 15,925 (S&P 500: 1,812). While the Bulls have taken charge – no need to panic.
Investor’s first read– a daily edge before the open
DJIA: 15,994
S&P 500: 1,819
Nasdaq Comp.: 4,191
Russell 2000: 1,129
Wednesday, February 12, 2014, 2014 9:12 a.m.
FED CHIEF YELLEN TESTIFIES
Fed Chief Janet Yellen testified before the U.S. House Financial Services Committee on Tuesday and will do so again Thursday before the Senate Banking Committee Thursday at 10:00 a.m..
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.
DEBT CEILING DEBATE
The U.S. House extended the debt ceiling until March 15, 2015. This has been a contentious, white knuckle issue in the past, no more.
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THE ECONOMY:
The economic calendar is lighter this week, but Fed chief Janet Yellen, testified before the U.S. House Financial Services Committee Tuesday and will do so again Thursday (10:00 a.m.) before the Senate Banking Committee (see below).
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: No major reports
TUESDAY:
NFIB Small Business Optimism Ix (7:30) Jan. index was up slightly to 94.1 from 93.9 in Dec.
ICSC Goldman Store Sales (7;45) Impacted by weather w/w for Feb. 9 was off 0.3 pct vs, plus 0.3 pct. Jan. y/y is plus 2.3 pct.
Release of Fed’s semi-annual monetary policy (8:30)
Fed’s Plosser speaks (9:00)
JOLTS –Job Openings Labor Turnover (10:00) Hire rate Dec. was 3.2 pct. Separation rate 3.2 pct.
Fed Chief Yellen Testifies U.S. House Financial Services Committee (10:00)
Wholesale Trade (10:00)Dec. inventories increased 0.3% offset by 0.5% increase in wholesale sales
Fed’s Lacker speaks (8:00 p.m.
Fed’s Fisher speaks (8:10)
WEDNESDAY:
MBA Purchase Apps (8:00 )
THURSDAY:
Jobless Claims (8:30)
Retail Sales (8:30)
Fed Chief Yellen testifies before Senate Banking Committee (10:00)
Business Inventories (10:00)
FRIDAY:
Import/Export Prices 8:30)
Industrial Production (9:15)
Consumer Sentiment (9:55)
2014
Jan 28 DJIA 15,837 A Very, Very Key Juncture in the Market
Jan 29 DJIA 15,928 Mini-Bear ?
Jan 30 DJIA 15,738 Risky Rallies
Jan 31 DJIA 15,848 2014 – An Ominous Start – How Far Down ?
Feb 3 DJIA 15,698 January Warning for the Market
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 ?
George Brooks
“Investor’s first read – an edge before the open”
*Stock Trader’s Almanac
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.
