Bulls Need a Pickup in Volume to Sustain Rally

George Brooks |

The futures were lower prior to the open yesterday, as investors were momentarily spooked by concern for a possible crisis associated with raising the nation’s debt ceiling.
There was no follow through and stocks firmed up, indicating institutional buying ruled, for the present.
What is needed here to really crank up stocks is an indication from Congress and the White House that partisan politics can be set aside to raise the debt ceiling and begin a bipartisan effort to cut spending. But that is a stretch, hostilities between both parties are so intense, it looks like a very contentious two to five months.
I expect it to get ugly as hell, with the country taken to the edge of default for the second time in 18 months. To stoke the hostility between Right and Left even more, will be proposals for regulation on assault weapons, ammo, etc. As if these guys and gals don’t hate each other enough, as it is.
Does the BIG money really care what they do in Washington, or does it think the corporate world can grow regardless of what happens ?
The stock market will tell us, once we get past the Q4 earnings reports and institutional buying accompanying the new year.
So, does one buy now and hope for the best, or be sure to have a cash reserve just in case Washington’s war skewers stock prices ?
It depends on one’s tolerance for risk. I would rather be wrong with my money in my pocket. If this bull market has any meaningful legs, there will be plenty of time to buy once past the next government crisis.
TODAY: Bulls hold a slight edge. Volume has been light, suggesting uncertainty may be setting in.
Minor support is DJIA 13,504 (S&P 500: 1,469).
DJIA: 13,534
S&P 500: 1472.36
Nasdaq Comp.: 3110.77
Russell 2000: 884.60
Wednesday, January 16, 2013 (9:10 a.m.)
A POSITIVE NOTE:
While I am bearish about the early months of 2013, the year can produce a lot of attractive opportunities, just at lower prices.
The U.S. economy has recovered from the worst recession/bear market since the 1930s. We survived, and that is huge.
Housing is in recovery mode, increasing homeowners’ “wealth effect,” corporations are flush with cash and hopefully the 113th Congress can resolve key spending issues, setting the stage for a sustainable recovery beyond the current one.
Signs of an economic recovery are surfacing in China with some forecasters becoming more optimistic about Europe’s stabilization and return to growth.
I see an interruption to the bull market in coming months that started in March 2009, but which has not fully run its course. Individual investors are largely absent, but they will return to buy near the end of the bull market when speculation ramps up. That can be a year or two out.
BOND MARKET:
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos. As the tensions from European sovereign debt woes abate, money will flow out of safe havens and into stocks where a better return is hoped for. The short-term bonds are obviously not the problem, but long-term bonds are vulnerable.
APPLE (AAPL: $485.92)
Well, the sellers had their way yesterday with break below $500 and an intraday low of $483.38. Having broken $500, I projected the first line of support around $468, breaking that the next level of support is $438. Sellers have been there to whack it every time it attempts to rebound, so it will have to find a comfort level that attracts enough buyers to meet sellers head-on.
What happens in a situation like this with a very popular stock under persistent selling pressure is fear mounts creating more selling resulting in one final high-volume plunge that flushes out all sellers big and small and that marks the bottom. It happens so quickly, then to everyone’s dismay, the stock rebounds sharply and sets into motion a “basing pattern from which it can eventually recover. No guarantees, but odds favor that will happen to AAPL. My best guess here would be that a selling climax would take AAPL down to $438 for just a moment, followed by a rebound to $475 or so.
Resistance now is $494. Without major positive news, I expect a rally failure and more downside. Its Q4 earnings are scheduled for release on Wednesday Jan. 23
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $30.10): Resistance starts at $30.33. Near-term support is $29.13. The stock was hit yesterday by an announcement that it had lost 1.4 million active users and by news of its introduction of Graph Search, which facilitates users’ search through connections for various items of interest.
FB has some 167 million users in the U.S., and 1 billion worldwide.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help out targeting a bottom as with FB.
ECONOMY:
Note: I am going to list the economic reports will not include the numbers from the last report, since those numbers are often revised significantly and therefore potentially misleading.
I suggest you access the website: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.
WEDNESDAY:
Consumer Price Ix.(8:30)
Industrial Production (9:15)
Housing Market Ix. (10:00)
Beige Book (2:00) Fed report on Jan 29-30 meeting.
THURSDAY:
Jobless Claims (8:30)
Housing Starts (8:30)
Philly Fed Svy (10:00)
FRIDAY:
Consumer Sentiment (9:55)
George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com

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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.

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