While Friday’s market stabilized with the major market averages closing close to their highs for the day, pre-market trading today suggests uneasiness about owning stocks continues.
Nevertheless, odds favor a rally today and it could start shortly after the open. The market has become unstable in face of new worries, primarily driven by the Russia/Ukraine crisis, but more so by the plunge in Nasdaq stocks which started in early March.
In early May, investors withdrew $7.7 billion from equity ETFs and $2.2 billion from equity mutual funds.
Withdrawals of this magnitude were followed by rebounds in the market 9 out of the last 12 times going back to 2000.*
However, there has been a lot of “corrective” action in stock prices so far this year, which has been masked by the publicity the financial press gives the market every time it rebounds to the new high area.
Failure to hold above DJIA 16,410 calls for a further drop to16,265.
Failure of the S&P 500 to hold above 1,867, calls for a further drop to 1,847.
Failure of Nasdaq to hold above 4,044 calls for a further drop to 4,024.
Barring a new major new negative, I think these levels will hold. If they don’t, the sell off would sharp but brief.
This market is only vulnerable to new negatives, primarily because it is selling close to its all-time highs.
I have a high regard for Robert Doll, head of money management at Nuveen Asset Management. His comments on Bloomberg Radio last week made a lot of sense. He said, “This is the least believed bull markets that I’ve ever seen. From here it’s earnings, it’s fundamentals, it’s can the economy grow? My guess the answer to that question is yes.”
TODAY:
Friday’s bounce was technical. Today is an important day for sensing the balance between buyers and sellers. If the latter is calling the shots, any rally today will fail and be followed by another leg down. Obviously, failure of a mixed-to-weak open to generate momentum on the downside would indicate a run to the upside.
Support today is DJIA 16,456; S&P 500: 1,873; Nasdaq Comp: 4,076
Resistance today is DJIA: 16,556; S&P 500: 1,883; Nasdaq: 4,101
Investor’s first read– Daily edge before the open
DJIA: 16,491
S&P 500: 1,877
Nasdaq Comp.:4,090
Russell 2000: 1,102
Monday, May 19, 2014 9:14 a.m.
Head & Shoulders Nasdaq Update:
On Friday May 9, I called attention to a prospective “Head & Shoulders” top formation, but warned readers to be careful, that it could abort to the upside.
I also noted the same pattern did not exist in the DJIA, S&P 500, and Russell 2000.
While the Nasdaq posted several strong days earlier in the week, selling picked up in all markets Thursday and a worst case breakdown to the 3,550 area is possible if the 4010 level is broken. Bear in mind, this group has been battered for more than two months. So far this level has held
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Sell in May and Go Away??
A popular jingle this time of the year for newsletters and journalists.
May has offered a number of timely exits, but I don’t buy the “stay away” part, clearly not until November.
Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). Obviously, the message here is of the two six month periods, May to November is the worst for stocks.
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:
We cannot have a robust economic recovery from the severe winter months without a rebound in housing. Such a rebound would likely be preceded by an up-move in housing industry stocks.
Trading in the following stocks has been generally upbeat in recent days, though there is still a seller out there to put a lid on attempts to run.
So far the numbers are not encouraging, but a sharp drop in long-term interest rates could pull mortgage rates down triggering increased housing activity.
PARTIAL LIST :
Beazer Homes (BZH) Monday $18.65
PulteCorp ($PHM) Monday $18.84
Toll Brothers (TOL) Monday $34.45
KB Homes (KBH) Monday: $15.93
DR Horton (DHI) Monday: $2219
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THIS WEEK’s ECONOMIC REPORTS:
Aside from a lot of speeches by Federal Reserve officials, this will be a light reporting week. Thursday brings Existing Home Sales and Friday New Home Sales.
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:
Fed’s Fisher speaks (8:30 a.m.):
TUESDAY:
ICSC Goldman Store Sales (7:45):
Fed’s Plosser speaks (12:30)
WEDNESDAY:
MBA Purchase Apps.(7:30)
Fed’ Dudley speaks (10:00)
Fed’s Yellen speaks (11:30)
Fed’s George speaks (12:50)
Fed’s Kocherlakota speaks (1:30)
FOMC Minutes released (2:00)
THURSDAY:
Jobless Claims(8:30):
PMI Mfg. Ix. Flash (9:45)
Existing Home Sales (10:00):
Leading Indicators (10:00):
Kansas City Mfg. Ix. (11:00)
FRIDAY:
New Home Sales(10:00)
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RECENT POSTS:
Apr 30, DJIA 16,535 Sell in May and Go Away ??
May 1 DJIA 16,580 Money Manager Dilemma – Plunge Now
May 2 DJIA 16,558 Big Move in the Offing ?
May 5 DJIA 16,512 Bear Calling Bulls Out
May 6 DJIA 16,530 Wild Ride to Continue
May 7 DJIA 16,401 Tech Headed For Slaughterhouse – Huge Selling Climax
Buy Looms
May 8 DJIA 16,518 Major, Major Bull/Bear Crossroads
May 9 DJIA 16,550 Head & Shoulders Top Nasdaq ?? Careful !
May 12 DJIA 16,583 Market Really Wants to Run, but…..
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 16,446 Market Needs Help from Economy, or…
May 16 DJIA 16,491 Bulls Blinked – But Don’t Get Too Bearish
*Bloomberg
**Stock Trader’s Almanac
A Game-On Analysis, , LLC publication
George Brooks
“Investor’s first read – a daily edge before the open”
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.
