Bulls Need to Reverse Technical Deterioration

George Brooks |

Not a good day for a market that appeared to be breaking out on Thursday.
Fortunately, pre-open trading indicates a rebound which has the potential to stabilize what looked like the beginning of a correction.
The Institute for Supply Management (ISM) Index was blamed for yesterday’s lack of follow through on last Thursday’s positive action. The Index fell to 51.3 in March from 54.2 in February. The Street expected a 54.0 reading. The ISM is comprised of a survey of 300 manufacturing firms and encompasses employment, production, new orders, supplier deliveries, and inventories.
But Construction Spending for February was at the highest level in more than four years and consumer spending was up in February, as well.
Then too, the economic health of 44 U.S. states for Q4 was reported as the best in any period since 2006. Four states (New Jersey, Maryland, Maine and Wyoming reported declines.
So what’s the problem ?
Maybe nothing. We still have Factory Orders at 10 o’clock today, the ADP Employment Report at 8:15 and the ISM Non-Manufacturing Report at 10 tomorrow. Jobless Claims come at 8:30 Thursday, but the big one, the Employment Situation Report, comes at 8:30 Friday.
TODAY: There has been some deterioration in technical indicators accompanying the major market averages. While not quite a greenstick fracture, this internal weakness is well worth respecting per chance it worsens.
This sort of momentary change in character is typical of bull markets. In a less stable environment, weakness like this rarely gives investors a chance to “lighten up,” prior a nasty correction. All too often, a deterioration in technicals are reversed by the momentum of a bull market and investors who are anxious to use any pullback in prices to buy.
The big thing to watch for today is a rally failure. A close at the lows for the day after a good run up during the day would confirm there are sellers using strength to dump.
Obviously, a rally that holds its gain suggests the opposite. It’s a good day to let the market speak !
Companies will begin to report Q1 earnings this month. This will become a major determinate in the direction of the market in coming weeks.
Investor’s first read – an edge before the open
DJIA: 14,572.85
S&P 500: 1,562.17
Nasdaq Comp.: 3,239.17
Russell 2000: 938.78
Tuesday, April 2, 2013 (9:01 a. m.)
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.
SEQUESTER:
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 to 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.
Apple (AAPL: $428.91)
Ugly got uglier yesterday as AAPL plunged $13.75 (3.11%). Selling accelerated toward the end of the day reflecting rising fears that AAPL will penetrate its Mar. 4, low of $419.
Once again, AAPL needs big news to prevent a new leg down, one that can take it below $400.
Currently, the Street is concerned about its product refresh cycle, criticism by the Chinese government and its legal battles with Samsung. However, it acts as if something else is spooking buyers.
There was no indication yesterday that AAPL is on the verge of a technical rebound. That can still happen in this general area, but its market action over the last four days will be tough to reverse. Yesterday did a lot of damage.
I am not long or short AAPL.
FACEBOOK (FB - $25.53) Buyer met sellers head-on yesterday – it would have to be called a “draw.” Resistance is now$26.25, Support: $25.30.
FB, like Apple, is especially news-sensitive. The ability of FB to monetize its base is debatable. On the positive, it already has a huge base of subs; at least, it doesn’t have to build that, but it must find ways to make money from that base – management must assure the Street it can do just that, and maybe only time will tell.
So, where has the selling come from ?
Possibly from IPO investors whose shares came out of lock-up, the latest being 777 million shares freed up in mid-November. .
That would be good news, since no one can blame them from raising cash for other purposes, even if they could get a higher price in the future. If they genuinely feel the stock is not worth the mid-20s, FB’s stock has a problem.
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.
Support is now $25, resistance is $25.90.
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.
TUESDAY:
Factory Orders (10:00)
WEDNESDAY:
ADP Employment Report(8:15)
ISM Non-Mfg. Ix. (10:00)
THURSDAY:
Jobless Claims (8:30)
FRIDAY:
Employment Situation Report (8:30)
International Trade (8:30)
Consumer Credit (3:00 p.m.)
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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