SUMMARY:
The Bulls have their work cut out for them. In addition to a purge of tech stocks, they must survive the Q1 earnings reports where the slightest disappointment can roil the price of a stock, even if its future is bright. Then there is Russia, which isn’t going to be content with controlling Crimea.
Suddenly, the market needs to climb a “wall of worry” again and do so at higher levels of valuation.
Even so, aside from Russia, the earnings reports will come and go, as will the trashing of tech stocks.
One hurdle this market cannot handle gracefully is a failure of the economy to rebound from its winter deep-freeze. Odds favor a rebound with an assist from a pick up in global economies, but an open mind at this point is needed for survival after a 177% five-year bull market surge in the S&P 500.
TODAY:
I don’t think the bloodletting is over. Perhaps at lower levels this Friday or early next Monday morning, IF the market gets whacked in the interim.
Resistance is DJIA 16,289 (S&P 500: 1,851). Rallies between now and Next week will run into sellers, unless of course the market plunges sharply to the DJIA 15,985 (S&P 500: 1,818) area, then I can see a big bounce.
The market needs to adjust for the UNCERTAINTY of earnings disappointments, a purge of tech stocks, and Russia’s next move. That will either take time or lower prices.
Nimble traders must be prepared to jump in, or place orders below the market in hopes of catching a brief plunge, something I refer to as a “wild bid.”
Now is also a time to make a list of stocks a person wants to own, stocks they feel comfortable with, in the event they get a bargain price.
Investor’s first read– Daily before the open
DJIA: 16,245
S&P 500: 1,845
Nasdaq Comp.:4,079
Russell 2000: 1,135
Tuesday, Apri1 8, 2014 9:16 a.m.
RUSSIA/UKRAINE
Russia’s annexation of Crimea was only the first step in President Putin’s power grab.Undoubtedly, he plans to stir additional unrest in sections of Ukraine where Russian speaking people are in great numbers. A military response by Ukraine would give him reason to invade Ukraine to protect pro-Russians and that would have an impact on global markets, which are vulnerable to begin with.
One of the factors that turns a normal market correction of 3% to 5% into a much bigger correction (5% to 12%) is new negatives that hit the market when it is about to rebound from the 5% correction. A sharp escalation in the Russia/Ukraine situation could be one of those factors.
SELL in MAY, and Go Away ?
You will soon read about that seasonal phenom. In the press and newsletters. 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, it is the worst for stocks. More in coming days.
I don’t think it can be taken as a “given.” 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.
A TECHNICAL ANALYSIS OF THE 30 DOW COMPONENTS
At key junctures, I technically analyze each of the 30 Dow stocks seeking a reasonable near-term downside risk, a more severe risk and an upside potential for each, then use the Dow “divisor” to convert that data back into the DJIA.
Currently, a reasonable risk based on present circumstances is DJIA 16,157, a more severe risk is 15,888 and the upside is 16,722. The latter would have to come after the current slide has turned the corner.
TECH STOCKS IN A TAILSPIN – TRADER ALERT
The following stocks should find initial support below the following levels from which a technical rally should develop. This is a technical opinion for today. I do not plan to follow up on a daily basis. I prefer late Friday and early Monday weakness for emotional turns. What can happen here is for a rally that is followed by another spike down on Friday, or in the first 20 minutes of trading Monday.
These are growth stocks that got ahead of themselves, but really will keep growing making them attractive for long-term portfolios. This kind of shakeout should whet appetites of institutional investors who recently felt comfortable buying at higher levels.
Apple (AAPL:$523.47 ) Below $513
Alexion Pharm (ALXN:$145.66 ) Below $137
Applied Mat’ls (AMAT:$20.13) Below $19.60
Athena Health (ATHN: $143.69) Below $141
DISH Network (DISH: $59.51) $56
Express Scripts (ESRX: $72.71) Below $70.60
Google (GOOG:$538.15 ) Below $506
IDEXX Labs (IDXX: $120.02: Below $115
Intuitive Surgical (ISRG: $487.03) Below $484
ISIS Pharm (ISIS:37.54
Micron Tech (MU:$21.71 ) Below $20.60
Netflix (NFLX:$338.00) Below $317
Qualcom (QCOM:$78.08 ) Below $76
Tesla (TSLA:$207.52 ) Below $182
Western Digital (WDC:$89.60 ) Below $87
Xilinx (XLNX: $52.93) Below $50.60
Yahoo (YHOO:$33.07 ) Below $29
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ANOTHER 6% + CORRECTION BEFORE MAY – UNLIKELY
One of the Stock Trader’s Almanac’s great discoveries is the fact the stock market’s performance during thesix months between November 1 and May1 is far superior to the six months between May 1 and November 1.* The Almanac refers to it as the “Best Six Months.”
Over of the last 25 years, the “Best Six Months” has produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best year up 25.6% (1998 – 1999).
Over the last 25 years, there have been14 corrections ranging between 6% and 16%, but more than one correction of this size during the Best Six Months was rare.
In 2002 there was a 6.2% correction in January and a 6.5% correction in March/April. In 2003, there was a 7.0% correction in Nov. 2002/December 2002 and a 12.9% correction in January/March of 2003.
So far, the DJIA is ahead 6.0% since October 31, 2013 even with a 7% correction in the interim. Another correction exceeding 6% is of course possible, but unlikely.
EUROPEAN ECONOMIES:
Manufacturing output , new orders and exports are up for the eighth consecutive month, suggesting its recovery is real, though not yet robust. Our economy has
scratched and clawed its way out of a horrendous recession without help from Europe. Obviously, a recovery there stands to accelerate the pace of our recovery here.
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HOUSING STOCKS – A spring rebound in the economy can hardly occur without a renewal of interest in housing stocks. While this group had a brief run last week, Friday’s sell off stopped it in its tracks. Looks like we must get deeper into April for enough confirmation of a spring rebound from the severe winter weather to get a read on how much of an improvement we can expect.
PARTIAL LIST:
Beazer Homes(BZH) Friday: $19.96
PulteCorp(PHM) Friday: $19.03
Toll Brothers (TOL) Friday: $36.00
KB Homes(KBH) Friday: $16.81
DR Horton(DHI) Friday $21.77
CONCLUSION:
All five housing stocks listed above spiked in early trading Friday, in sympathy with the major market averages.
I don’t see a robust rebound yet, it is now a “wait and see” situation as the Street tries to get a handle on a potential spring rebound.
Yesterday was a bad day for these housing stocks as it was across the board for many others, so the weakness cannot yet be taken as a bad omen for the group or the economy in general – not yet.
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THIS WEEK’s ECONOMIC REPORTS:
The economic calendar this week is light with the highlight being the FOMC report.
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.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:
Consumer Credit (3:00):
TUESDAY:
NFIB Small Business Ix.(7:30):
ICSC Goldman Store Sales(7:45):
JOLTS-Job Openings Labor Turnover(10:00):
WEDNESDAY:
MBA Purchase Apps (7:00):
Wholesale Trade (10:00):
FOMC Minutes (2:00 p.m.):
THURSDAY:
Jobless Claims (8:30):
Import/Export Prices (8:30)
FRIDAY:
PPI-FD – inflation report (8:30)
Consumer Sentiment(9:55):
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RECENT POSTS:
Mar 19 DJIA 16,338 A Spring Break for the Economy ?
Mar 20 DJIA 16,222 Fed Reality – Market Up, or Down ?
Mar.21 DJIA 16,331 Yellen, Putin, Economic Freeze, Quadruple Witching Friday
Mar 24 DJIA 16,302 BIG Test for the Market Today
Mar 25 DJIA 16,276 Bull Top Unlikely – Why
Mar 26 DJIA 16,367 Bulls Must Beat Key Resistance Level
Mar 27 DJIA 16,268 Rally Failures = Lower Prices – Opportunity !
Mar 28 DJIA 16,264 April/May Surprise Surge ?
Mar 31 DJIA 16,323 CONFIDENCE Calls the Shot – April Opportunity ?
Apr 1 DJIA 16, 457 Rounding Top or Base for Big Upmove ?
Apr 2 DJIA 16,532 Market Wants to Run
Apr 3 DJIA 16,573 What the Market Really Needs Now is……
Apr 4 DJIA 16,572 New Highs Need to Hold Today
Apr 7 DJIA 16,412 Sell Off to Create Trader’s Buy
*Stock Trader’s Almanac
A Game-On Analysis, LLC publication
George Brooks
“Investor’s first read – an 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. Brooks may buy or sell stocks referred to herein.
