The stock market continues to get its momentum from buyers who simply have nowhere else to invest their money.
Whether too many analysts expect a correction and therefore it won’t happen, or too few think a correction can happen because there is nowhere else to invest, is debatable. The market rarely accommodates the consensus.
I am uneasy by what I am seeing happen in the big name stocks, which are getting hammered far more than they should in light of their size and historical stability.
IBM and GE got whacked four days ago, Yesterday, Amgen (AMGN) was down $7.83 (-7%), Edwards Life Sciences (EW) down 18.21 (-22.0%), Eli Lilly (LLY) down $2.28 (-3.0%), Procter & Gamble (PG) down $4.82 ( -6.0%) and AT&T (T) down $1.96 (5.0%).
“Central Banks Load Up on Equities as Low Rates Kill Yields,” was the lead for a Bloomberg story today, which went on to note that “Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk-averse investors toward equities.”
The S&P 500’s dividend yield is 2.2% vs. a 1.69% yield on the 10-year U.S. Treasury Bond which is below a U.S. inflation rate of 1.5%.
Wait a sec ! That dividend pales compared with the potential for loss, just look at what happened to the blue-blue-blue chips above. While long-term bonds are a bubble about to burst, at least they have a maturity date.
What if both bond and stock market decline together ?
TODAY:
The bulls still have the ball, but are having trouble advancing it.
The buying appear to be automatic without any second thought or regard for corporate earnings, many of which have surprised by failing to beat projections.
Long-term bonds are risky, short-term debt yields nil.
Stocks are the only game in town, but that doesn’t justify getting reckless, just look at what happened above.
Look for a plus open today, but watch for a “stall” and a rally failure. That would signal the beginning of a test of last week’s low of DJIA 14,444 (S&P 500: 1,536).
I think this is a market that is worth risking missing some buying opportunities to get a better handle on whether it is heading north or south.
Central Banks Buying Stocks – Really ?
Investor’s first read – an edge before the open
DJIA: 14,676.30
S&P 500: 1,578.79
Nasdaq Comp.: 3,269.65
Russell 2000: 934.11
Thursday, April 25, 2013 (9:12 a.m.)
SEQUESTER: Stay tuned, it may become a factor.
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 of 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: $405.46) Decision time.
It looks like the Street is working their slide rules, crunching numbers to decide whether to buy, sell, or defer purchase at this point. This is a normal delayed reaction that often occurs at critical junctures.
Volume was heavy, suggesting a balanced difference of opinion. We should know before the weekend which way it is going. A stall at $410 would not bode well. A move across $430 improves the picture. The $392 level must hold or I see a drop below $370.
It’s not that its 43% plunge hasn’t discounted the sharp slippage in its growth rate and new product introduction. It is a value here. The problem is, does it represent enough upside to attract serious buying, or does it have to probe lower to find that kind of interest ?
I feel it is enough of a value to own some but not a lot of its stock, since there is a risk of another leg down.
I am not long or short AAPL.
FACEBOOK (FB – $26.11)
FB improved ever so slightly yesterday. A break above $26.40 would pave the way for a move across $27 and improve the odds that the stock won’t drop below $25 near-term.
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.
I am not long or short Facebook.
TODAY: Resistance starts at $26.87. Support is $25.76.
ECONOMY:
Investors will be looking for assurance this week that the economy is not weakening seriously. Reports from the primary driver of our recovery, housing, will come Monday and Tuesday. Due to strong numbers in February, analysts are revising Q1 GDP estimates upward, some to 3%.
THURSDAY:
Jobless Claims (8:30)
Bloomberg Consumer Comfort Ix. (9:45)
Kansas City Fed. Mfg. Ix.(11:00)
FRIDAY:
GDP (8:30)
Consumer Sentiment (9:45)
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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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