This year’s surge in stock prices has been driven by the unrelenting accumulation of stocks, as institutional money managers scramble to achieve an acceptable return for their clients’ investments.
Should there be a letup in their buying, even for a matter of weeks, the market will correct, as traders rush to lock in profits.
A 4% to 8% correction would be normal. If bad news hits the market at the point when the market is turning up, the correction will be greater. No way to know that now.
Tuesday’s rally lacked follow through and was followed by Wednesday’s decline. While ahead fractionally, Thursday’s market lacked conviction.
Selling during the last four days has put a lid on stock prices, and based on pre-market futures trading that selling will continue at the open.
Since the beginning of the year, the bulls have absorbed this kind of selling, thus preventing a correction. They will have to step in once again or the market is going into a correction. That’s why I have been saying it is the bulls, not the bears, who will signal the start of a correction..
The basic technical indicators underlying stock prices such as stochastics, MACD, Price Rate of Return, Williams, Money Flow, etc. are weak. But they were weak in April prior to a 9.8% surge in prices.
Gutsy traders may want to step in and take their cuts on today’s weakness at the open, so long as they are quick to bail if wrong. At this point, I would prefer to see what the bulls still have left in their tank.
That’s a near-term observation. Beyond that, I think the bull market continues.
The bulls need a sharp rebound from early market weakness, a solid plus-day to assure the Street they are still persistent buyers.
Resistance is DJIA 15,396 (S&P 500: 1,661).
Near-term support is 15,260 (S&P 500: 1,646).
Investor’s first read – an edge before the open
S&P 500: 1,654.41
Nasdaq Comp.: 3,491.29
Russell 2000: 994.43
Friday, May 31, 2013 (9:13 a.m.)
Apple (AAPL: $451.l48)
Note: I inadvertently repeated Wednesday’s AAPL’s analysis again on Thursday. Yesterday, AAPL broke out of a seven-day consolidation en route to an attempt to challenge resistance starting at $460.
FACEBOOK (FB – $24.55)
Note: I inadvertently repeated Wednesday’s FB analysis again on Thursday.
At yesterday’s $23.93 low, FB retraced two-thirds of its Nov. to Feb. 72.2% surge before rebounding sharply across $24.50
The rebound was welcome, since a further slide would indicate fundamental problems not yet known. Resistance looks formidable starting at $24.75 on up to $27.
We have a full docket of economic reports this week. For access to information including charts and graphics go to www.mam.econoday.com .
There were 3,844 million jobs openings at the end of March, vs. 3,899 the month before, suggesting a continuing soft job market.
Thursday: Q1 GDP increased 2.4% at an annual rate vs. projections for a gain of 2.5%. Government spending adversely impacted the rate of growth, but this data is subject to revision. Jobless claims rose 10,000 for the week ended May 27. Pending home sales increased 0.3% in April.
Personal Income & Outlays (8:30)
Chicago PMI (8:30)
Consumer Sentiment (9:55)
“Investor’s first read – an edge before the open”
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.