Bulls Must Pick it Up, or Lose the Ball

George Brooks |

Yesterday’s market action was positive, reflecting a flow of good, but not great, economic data.

      Jobless Claims for the week ending May 31 were up 8,000, a non-event, leaving the Employment Situation report tomorrow (8:30) as the key economic report of the week.

      I believe the economic recovery will gain momentum, the only risk here is that of the current valuation of stocks. 

      Stock prices have discounted what we are now seeing in the economic reports. What is needed for significantly higher prices is an acceleration in the economy beyond this level, or for the Street to envision such an acceleration 6 months to 12 months into the future.

      That would justify the expectation for a significant growth in corporate earnings.

      The impact of the European Central Bank’s cut in its benchmark interest rates and plans to employ further efforts to stimulate their economies should be a big positive for the U.S. economy, but pre-market futures trading has not reflected that – yet.

TODAY:

      All is well, or so it seems, and that is good reason to be a little defensive, just in case we get one of those sharp three-day plunges that come out of nowhere.

Support today is DJIA 16,685; S&P: 1,919; Nasdaq Comp.: 4,233

Investor’s first read Daily edge before the open

DJIA:  16,737

S&P 500:  1,927

Nasdaq  Comp.: 4,251

Russell 2000:    

Thursday,  June  5, 2014      9:15 a.m.               

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NOTE:  I continue to run “Sell in May” and “Housing” for two reasons. One, this analysis is relevant and I add important content frequently. Two, I get new readers, and I want them to have access to this insight.

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Sell in May and Go Away??

    So far this popular bromide has been misleading.

   While May has offered a number of timely exits, I don’t buy the “stay away” part, clearly not until November.

    Based on the market’s strength since May 21, it looks like my contrariness is being rewarded. The DJIA closed at 16,580 on April 30, has undergone two  corrections but is now higher than on May 1.

   Both of those corrections looked like the beginning of something, but turned out to be head-fakes.

   Undoubtedly, more corrections will lead “sell in May” investors to want to pack it in until November. For a while they will believe they were right, that is, until another sharp rally raises doubts.

   Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). 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:

      I began to track these housing stocks, hoping to gain some insight into the strength of the economic recovery emerging from a severe winter.

      My reasoning was that a robust economic recovery cannot develop without a contribution from the housing sector.

      The sector is stable with spikes up, but sellers are quick to enter to turn them down.

          Inventories continue to drop along with falling mortgage rates, a combo that forces home prices upward, which should prompt a stampede to buy before available attractive homes are picked up. The problem, banks are not anxious to lend at such low rates and many buyers simply can’t qualify for mortgages.

      Yesterday, the group continued to consolidate recent gains, but the group is not reflecting any major accumulation.

     

    PARTIAL LIST :

Beazer Homes  (BZH) : $18.87

PulteCorp ($PHM): $19.61

Toll Brothers (TOL) : $35.97

KB Homes  (KBH) : $16.44

DR Horton  (DHI) : $23.69

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THIS WEEK’s ECONOMIC REPORTS:

      Another big week for economic news. If it indicates the economy is charging out of its winter slump, money managers can expect to ramp up buying, assuming the outlook for corporate earnings will improve. 

      For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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:

PMI Mfg. Ix. (9:45): May up to 56.4 from 55.4 Apr. – New Orders solid 58.8

ISM Mfg. Ix. (10:00): May up to 55.4 (after correction of 53.2) vs 54.9 Apr. – New Orders up to 56.9 from 55.1)

Construction Spending (10:00): Up 0.2 pct. in Apr.  vs. gain of 0.6 in Mar.  Projection was for gain of 0.7 pct..

TUESDAY:

ICSC Goldman Store Sales (7:45) Jumped sharply 2.9 pct. in My  31 week vs. 4.2 pct. week before

Motor Vehicle Sales: Apr. light motor vehicles came in at a 16.0 million annual rate,  vs.  an annual rate of 16.5 million vehicles.

Factory Orders (10:00): Rose more than projected to +0.7 pct, unchanged from the prior month

Global Mfg. PMI (11:00):  The index for May’s manufacturing PMI was 52.2 vs 51.9 in Apr..                                                                                                                                                                                                                                                                               

WEDNESDAY:

MBA Mtg. Purchase Apps. (7:00): Declined 4.0 pct. in May 30 week;  Year/year now down 25 pct.. Refi’s declined 3.0 pct.

ADP Employment Report (8:15): Non-Farm payrolls up 210,000 in May; 179,000 Private sector. Small business picks up.

Int’l Trade (8:30): Trade gap rose to $47.2 billion in Apr. from 44.2 billion in Mar.

Productivity/Costs (8:30): Q1 Productivity fell 3.2 pct. in Apr. (drop revised up from  minus 1.7%.  Severe winter weather blamed.

PMI Services Ix.(10:00)  Up sharply in May to 58.1 from 55.0 in Apr..

ISM Non-Mfg  Svcs(10:00): Up sharply in May to 56.3 from 55.7 in Apr.

THURSDAY:

Jobless Claims (8:30): Rose 8,000 to 312,000 for May 31 week

Global Composite PMI 11:00):

Global Services PMI (11:00):

FRIDAY:

Employment Situation (8:30):

Consumer Credit (3:00):

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RECENT POSTS:

May 13, DJIA  16,695  Bulls in Wings – Market Needs a Spark

May 14  DJIA  16, 715 What Could Spark a Surge or Plunge

May 15  DJIA  16,613  Market Needs Help from Economy, or…

May 16  DJIA  16,446  Bulls Blinked – But Don’t Get Too Bearish

May 19  DJIA   16,491  Stock Market Getting Ready for a Move ?

May 20  DJIA   16,511  Bull Still Alive

May 21  DJIA   16,374  Market Needs Help from Fed and Economy

May 22  DJIA   16,533 Again – Stock Market Set for a Big Move

May 27  DJIA   16,606 Market to Key on Week’s Economic Reports

May 28  DJIA   16,675 Stock Market Needs  a Catalyst

May 29  DJIA   16,663 European Monetary Ease June 5 – a Catalyst ?

May 30  DJIA   16,698 A “Teaser” Market Capable of Big Moves Either Way

June 2    DJIA   16,717 Decision Time for Stocks ?

June 3    DJIA   16,743 Economy “Must” Accelerate,  or….

*Bloomberg

**Stock Trader’s Almanac

 

A Game-On Analysis,  LLC publication

George  Brooks

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

Brooks007read@aol.com

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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