CONFIDENCE Calls the Shot - April Opportunity?

George Brooks |

SUMMARY:

   Spring is on us, and whether warmer weather will encourage a surge in spending will become fact or fiction shortly. Based on today’s pre-market activity, it looks like the Street is jumping the gun with a strong open.

   CONFIDENCE, or lack of it, rules.  The long winter gave investors too much time to think (but not analyze).  Yes, the Fed will eventually let interest rates rise, but not for a year and from the “zero” level.  A war over Ukraine is a possibility, but unlikely. By some yardsticks, stocks are over valued, but by which yardstick ?  Valuations have ranged so widely over the years, it depends on who you ask.

    What calls the shot is CONFIDENCE IN THE FUTURE.  If investors become truly optimistic, this bull has a long way to run.  Without that, it’s sideways with a bunch of corrections for a year or two.

TODAY:

   The DJIA and S&P 500 are churning in a trading range (DJIA 16,050 to 16,500 and S&P 500: 1,840 to 1,830).  A break beyond the upper limit of that range hinges on the ability of the U.S. economy to snap out of its deep freeze and rebound with renewed consumer and corporate spending along with a resurgence in home buying.  Failure to do so, would trigger lower prices.

   Obviously, a deterioration in the Russia/Ukraine situation would be a huge negative.

Resistancestarts at DJIA 16,396 (S&P 500:1,863). Breaking that the next resistance level is DJIA: 16,455 (S&P 500: 1,874)

Minor supportis DJIA 16,295 (S&P 500: 1,854). Breaking that next support is DJIA16,225 (S&P 500: 1,847).

   The Nasdaq Composite has taken a beating over the last two weeks. While these stocks got pricey, I wouldn’t be quick to give them a ten-count yet.  Traders can look for a spike down to a smidge below 4,105.

   A strong open today is welcome BUT there is no room for a rally failurenone.  That would signal sellers are still dominant.

Investor’s first reada daily edge before the open

DJIA:  16,323

S&P 500: 1,857

Nasdaq  Comp.:4,155

Russell 2000: 1,151

Monday, March 31, 2014,    9:16 a.m.

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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.

.THE FED:

   Fed chief JanetYellen  said in her press conference last week  that the Fed’s  stimulus program could end this fall and benchmark interest rates could rise six months later, which places a rise in rates in the spring of 2015 rather than the second half of 2015.

   She also said the Fed was abandoning its threshold target of an unemployment rate of 6.5% for  qualitative analysis of a broad range of data, including labor market conditions, inflation expectations and financial markets.

   The Fed’s new target interest rate would be 1% at year-end 2015 and 2.25% at year-end 2016.

    Additionally, she announced another $10 billion taper to$55 billion.

    The only thing new here is the timing of a rise in interest rates, several months ahead of expectations.

    At first the market plunged, then it rallied, but Thursday was followed by a rally failure Friday after a big spike in early trading – not good.

A word of caution. Initial responses can be deceiving, since institutional investors tend to crunch numbers in response to important changes in conditions. It is possible, they may consider an earlier change in interest rates as a negative and sell down to a level they think discounts the timing of the rise.

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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    TECHNICAL ANALYSIS EACH OF 30 DOW STOCKS:

   At key junctures, I technically analyze each of the 30 Dow Jones industrials for a reasonable near-term  downside and a more extreme downside, as well as a near-term upside potential. I note the price for each, add them up and divide by the DJIA divisor (0.1557159) and arrive what the DJIA would be if each of the 30 stocks hit my targets.

   As of  Thursday’s close I concluded a reasonable near-term downside  for the DJIA was 15,900, a more severe near-term  downside would be 15,625. The near-term upside would be 16,511.  That’s all assuming the overall news environment doesn’t change.

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HOUSING STOCKS – Watch housing stocks for a clue to the direction of the economy.

    As spring approaches, the Street will be dissecting every morsel of  economic data in search of how much of the recent slowdown in the economy is attributable to severe weather.

   A logical place to snoop is the housing industry and stocks since they should firm up before the industry stats confirm a rebound

 PARTIAL LIST: 

Beazer Homes(BZH)  Friday: $19.67

PulteCorp(PHM) Friday: $19.01

Toll Brothers (TOL) Friday: $35.72

KB Homes(KBH) Friday: $17.02

DR Horton(DHI) Friday $21.67

CONCLUSION:

   Not only can sudden strength in these stocks signal an economic improvement, they can offer an opportunity, and should be tracked closely. If a green light is, imminent, the BIG money will be buying ahead of the news.  

   All of the above except Beazer (BZH) firmed up Friday. Nothing too dramatic, but an indication of buyer interest and lack of selling intensity.

  

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THIS WEEK’s ECONOMIC REPORTS:

The economic calendar this  features important employment, manufacturing, service industry reports, however these reports may still be adversely impacted by severe weather conditions.

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:

Chicago PMI (9:45):

Dallas Fed Mfg. Svy.(10:30)

TUESDAY:

Motor Veh. Sales

ICSC Goldman Store Sales (7:45):

PMI Mfg. Ix. (9:45):

ISM Mfg. Ix. (10:00):

Construction Spend (10:00):

Global Mfg. PMI (11:00):

WEDNESDAY:

MBA Purchase Apps (7:00):

ADP Employment Report(8:15):

Factory Orders (10:00):

THURSDAY:

Int’l Trade (8:30):

Jobless Claims (8:30):

PMI Services Ix. (9:45):

ISM Non-Mfg. Ix. (10:00):

FRIDAY:

Employment Situation (8:30):

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RECENT POSTS:

Mar 7   DJIA 16,421  Pivotal Day in the Market

Mar 10 DJIA 16,452  Important Test for the Bulls Today

Mar 11 DJIA 16,418 Gold Due For a Play ?

Mar 12 DJIA 16,351  Crimea – How Big A Negative for Stocks ?

Mar 13 DJIA 16,340  Correction to Set Up An Opportunity

Mar 14 DJIA 16,108  Selling Climax Next Week ?

Mar 17 DJIA  16,065 Rally Failure Risk, But Trader’s Buy Looms

Mar 18 DJIA 16,247  Market Vigil – Economy and Russian Nationalism

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 ?

A Game-On Analysis, LLC publication

George  Brooks, Sole Member,Manager

“Investor’s first read – an edge before the open”

Brooks007read@aol.com

The writer of  Investor’s first read, is  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.

 

 

 

 

 

 

 

 

 

 

 

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Symbol Name Price Change % Volume
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