This bull has more legs than a centipede, but that is the M.O. of bull markets. They feed on momentum, driven by institutional and individual investors who are pressured to buy. Any stock that is sold must be replaced with a buy – a perpetual machine, so to speak.
The market is overdue for a 3% – 5% correction. Problem is, the Street doesn’t hold a press conference to announce its beginning.
Unless triggered by major unexpected news, these corrections start innocently with a slight pullback, one of many that come and go without fanfare.
However, out of nowhere, sellers show up when it is on the verge of rebound, and an insignificant blip becomes a nasty correction.
Just be aware it can happen. These things happen when investors are absolutely sure it is time to go “all-in.”
CASE for CURRENT LEVEL OF STOCK PRICES:
It is important to note (again) that the stock market has rebounded to the level where the bear market of 2007-2009 began. The difference now vs. then is we are not currently facing the horrendous string of adversities here and abroad we faced then. Real estate is recovering, corporations are sitting on huge stashes of cash, which must soon be spent, employment is improving, and there seems to be a greater willingness in Washington to address problems. Europe is on the mend.
We are not engaged in a full scale war, BUT I wouldn’t rule out U.S. intervention in the supply of aid to Syria from Iran.
TODAY: Positive at the open. Last Thursday’s market action was negative, but Friday’s rebound offset it. I think the market will be looking to economic reports this week for assurance that the economy is gaining traction.
Extreme, intraday volatility has returned. The DJIA has a good shot at crossing 14,550 (S&P 500: 1,565) this morning. I am surprised it isn’t off to a better start. A rally failure today would suggest another plunge down – first stop is support at DJIA 14,490 (S&P 500:1,545. Breaking that look for DJIA14,430 (S&P 500: 1,547).
Investor’s first read – an edge before the open
DJIA: 14,512.03
S&P 500: 1,556.89
Nasdaq Comp.: 3,244.99
Russell 2000: 946.27
Monday, March 25, 2013 (9:12 a. m.)
SEQUESTER (No, it didn’t go away):
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 putting them on unemployment at the expense 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.
Cyprus: Cyprus and the European Central Bank, European Commission and International Monetary Fund headed off a crisis last night agreeing to the outline of an aid package than provides Cyprus with $10 billion euros ($13 billion) of emergency loans needed to avoid default. Cyprus, the euro-area’s third smallest economy is the fifth EU country to be rescued since the crisis erupted with Greece in 2009. International stock and bond markets reacted positively.
Spain may become a reason for concern once again as the difficulty of curbing its growing deficit is complicated by the country’s slow economic growth.
Apple (AAPL: $461.91)
AAPL broke out of its “consolidation” mode at $454 and moved steadily to $462. Resistance starts at $467, but AAPL has a shot at $474 in a decent market. It is off to a good start today in pre-market trading, up close to $4. I would like to see more volume here in case sellers whack it after a nifty $40 move. Support moves up to $456.
At less than 10 times earnings, (a 33% discount from the S&P 500’ P/E), customer service second to none, and down 35% from its September $705 high, this industry leader clearly should be attracting more buying. I sense there is some serious money earmarked for AAPL, it is just waiting for a greener light on earnings growth going forward. Currently, the Street appears to expect a big increase in AAPL’s dividend, possibly by as much as 50%. While that would increase its interest as an investment to a wider range of investors, just be aware that dividends are taxed and the price of a stock is reduced by the amount of the quarterly dividend on the ex-dividend day. If the stock is rising at the time, it will go unnoticed, but this is not free money.
I am not long or short AAPL.
FACEBOOK (FB – $25.73) There is a persistent, but patient seller here using any buying to unload stock. There is a negative pattern here in that FB has closed at its daily low in 9 out of the last 11 days. That may have changed Friday. Watch volume here. A big buyer could push FB back up across $27.50.
On a positive note, yesterday’s intraday high and low traded within that of the prior day suggesting a better balance between buyers and sellers, though volume is too light to test either one. If you are long-term bullish, this level should be attractive for nibbling. There is still risk of a drop to $25, but I would not bet on it.
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.
ECONOMY:
This will be a heavy 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.
MONDAY:
Chicago Fed, Nat’l Activity Ix.(8:30)
Dallas Fed. Mfg. Svy. (10:30)
TUESDAY:
Durable Goods (8:30)
S&P Case Shiller Home Price Ix. (9:00)
New Home Sales (10:00)
Consumer Confidence (10:00)
Richmond Fed. Mfg. Ix. (10:00)
WEDNESDAY:
Pending Home Sales (10:00)
THURSDAY:
GDP (8:30)
Jobless Claims (8:30)
Chicago PMI (9:45)
Kansas City Fed. Mfg. Ix. (11:00)
FRIDAY:
Personal Income/Outlays (8:30)
Consumer Sentiment (9:55)
RECENT POSTS: 2013
Mar 11 DJIA 14,447 “Bulls: Room to Run, But Not in a Straight Line”
Mar 12 DJIA 14,447 “Insider Selling ?”
Mar 13 DJIA 14,450 “Press Driven Investor Euphoria
Mar 14 DJIA 14,445 “What Do Institutions Do When the S&P 500 Hits a New All-Time High ?
Mar 15 DJIA 14,539 “New All-Time High for S&P 500 Today ? Apple Finally Turning the
Corner ?
Mar 18 DJIA 14,514 “How Quickly Will Bulls Pounce on Lower Prices ?”
Mar 19 DJIA 14,452 “Correction More Technical Than Cyprus-Related”
Mar 20 DJIA14,455 “Stubborn Bull”
Mar 21 DJIA 14,511 “Bulls Need to Pick It Up Here to Avoid Correction”
Mar 22 DJIA 14,421 “Volatility-Whipsaw Trading Returns”
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.
