Correction? Not So Fast, Says Nasdaq!

   “Is this the correction I have been warning about,” I asked in yesterday’s pre-open post.  The blue chip DJIA plunged 178 points Monday, other market averages followed its lead.

   I added, “The best read can be gained from assessing any attempt of the market to rebound.”

   Yesterday, the DJIA  and S&P 500 rebounded impressively, but it was the Nasdaq Composite and Russell 2000 that stole the show, recouping all of Monday’s loss.

   My “Technical Analysis Alert” list (see below) followed suit. Most of these stocks are listed on Nasdaq and considered aggressive  growth stocks.

   CONCLUSION:

   Based on the ability of  yesterday’s market to rebound from an abrupt and nasty plunge, and especially on the power displayed by Nasdaq and Russell stocks, there are buyers out there who will use lower prices to accumulate stocks, especially ones with greater  (but not riskless) potential.

   If Monday was an acceleration of a decline that started at the beginning of the year, it should not have been so easily reversed yesterday. What’s more, the rebound held its gain.

   If a decline is imminent, that should not have happened.

   I expected the market to continue down on Tuesday – wrong read on my part. But I did note that the “best read” would be gained by observing any attempt to rally. A rally failure (market gives back all its gain), would have been confirmation that a correction was underway. Didn’t happen. The market held its gain.

   We often get our best “read” by studying how the market behaves when it runs counter to a previous trend.

   The risk of a Q1 correction is still there, as explained below, but yesterday’s rebound suggests the burden of proof is now on the bears.  If this is going to happen in January, they have their work cut out for them.

   TODAY:

    Q4 earnings will be reported in coming weeks, along with the dreaded changes in broker ratings and estimates for coming quarters.  Expect sharp moves both ways.  

   Resistance is DJIA: 16,423 (S&P 500:1,843)

   Support is DJIA: 16,280 (S&P 500: 1,825)

 

Investor’s first read – a daily edge before the open

DJIA: 16.373

S&P 500:   1,838

Nasdaq  Comp.  4,183

Russell 2000: 1,163

Wednesday, Jan. 15, 2014   9:05 a.m.

       DO NOT MISUNDERSTAND  MY POSITION HERE. I am still bullish. However, for weeks I have been concerned that  themarket is going to get whacked, if only for several weeks; it simply has been a question of when.  I think it’s in Q1, and  January is a good bet. Beyond that,  it will be volatile with a number of great buying opportunities.

  While 5% corrections are  unnerving, they are generally over in the matter of a week or two. It’s the ones that exceed 5% that are like a sharp poke in the gut.

   The greater than 5% ones are  news-driven or technical.  News driven start with a catalyst, an incident that is going to hang around unresolved for a while.

   The technical ones  reflect a momentary lapse in buying.

THE KEY TO THE SIZE OF A CORRECTION:

    A modest technical correction can become a greater one, if the market is hit with bad news as it is about to turn upward. That’s when a 5 percenter becomes an 8-pecenter or worse.

  

STRATEGY:

   One strategy for investors to employ under these conditions would be to buy  a partial position in a stock they want to own, but feel  it could be bought at a lower price after a market correction. If it goes higher, they are still making money. If it goes lower, they can average their cost.

   Likewise, if  an investor feels a position is vulnerable but believes it could still go higher, he can sell off  part of the  position. If it goes higher, sell the rest. If it goes lower, the higher sale averages out the shares sold at a lower price.

   As simplistic as this strategy is, it is easy to overlook under pressure.

  

I AM REPEATING THE FOLLOWING TO MAINTAIN AN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.

Best Six Months to own stocks:

Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.

   The Almanac’s  “Best Six” goes back to 1950.  The six months is a snapshot between November and May.  Many major market advances often start before November, but the point made  here is the period between fall and May is where the action is.

 Is this going to be another “BEST six months to own stocks ?

The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*

   With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).

   THE DANGER:  over the last 25 years, there have been 14 corrections ranging between 6% and  16% during this November1  toMay1 period. Seven of those started in January, two in December and four in February.

   TIMING – OPPORTUNITY STOCKS 

   The following are based on technical analysis only and  are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of  the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly. 

Apple (AAPL: $546.39) Positive

 Needed a big buyer to reverse  its 12-day  slump. It got that Monday (in a bad market) and yesterday, as well. Support: $538.

Facebook (FB:$57.74) Positive

Rebounded nicely, but volume light. Support:$56.50, Resistance: $58.5

IBM (IBM:$185.92)   Positive

Found support at $184.  Resistance starts $188.

Pulte Homes (PHM: $19.52)  Positive

Friday’s attempt to breakout reversed by big market drop. Stabilized above my support ($18.60). Once again, resistance is $20 (ugh!).

First Solar (FSLR:$51.05)  Negative

 No change. Goldman Sachs really skewered this one when it  downgraded it to a sell from  a buy.   Broke support at $51 and found some buyers north of $49, but needs big buyers to turn the corner.  Resistance is formidable at $52 – $53.

 Nike (NKE:$75.17)   Negative –

Stabilized after Monday’s crunch. Resistance $76.30. Support: $74.60

Hewlett-Packard (HPQ:$28.85)  Positive. 

Had a decent day in a lousy market but closed off from its intraday high.

Rebounded nicely Tuesday. Support is now$28.60.

Polaris Inds. (PII:$140.17)  Positive  

Stabilized above $138.Needs a follow through.

Amazon (AMZN: $397.54) Positive

Rebounded yesterday. Has a shot at crossing $400.  Support now $392

Pandora Media (P:$34.13) Positive.

Stock has been responding to positive “listener” data news for 2013 year, but overall market is hurting further upside.  Looks higher, but this one is highly volatile.

NEW !   NEW !  NEW !  – Technical Analysis ALERT list

The following is a “Technical” alert list, stocks that have indicated an improved technical pattern.  I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their  technical pattern is improving. Normal intraday fluctuations can  offer a lower price than that listed here. Positive patterns can be interrupted by corrections.

   Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop cell in line with your tolerance for risk.

NOTE: Monday’s market plunge adversely impacted most of the technical attractiveness of the following stocks, but all except Cardtronics (CATM) stabilized or rebounded sharply.  Yesterday, I have noted price levels where I thought these stocks should encounter buying (support).  But the intensity of the weakness in the overall market can take them much lower.  While lower prices can make  a stock more attractive, a decline can be a way station en route to yet lower prices, especially if the overall market is in a tailspin. A break below these support levels can eliminate a stock from this list. These stocks were demonstrating technical strength before Monday’s slump, so they could rebound sharply. So much now depends on what the overall market does.

Align Technologies (ALGN:$60.40)  Listed here (12/23) at $57.03.  Support:$59

Gentex (GNTX: $33.32)   Listed here (12/23) at $32.64. Support: $32.80

Netease (NTES: $79.51)  Listed here (12/23) at $74.51. Reversed after hitting 52-week high $84.35. Support: $78.40

Spirit Airlines (SAVE: $47.81)  Listed here (12/23) at $46.06.  Support: $47

Valeant Pharm (VRX: $135.01) Listed here (12/23)  at $112.  Support: $134

Dycom (DY:$27.39)  Listed here (12/23) at $28.05.  Support: $27.30

Cognex (CGNX: $37.69) Listed here (12/23) at $36.09. Support $37.50

Salex Pharm. (SLXP: $96.58)  Listed here (12/23) at $87.61. Support: $96

Natus Medical (BABY:$25.55) Listed here (12/24) at $22.80. Support: $24.50

Sierra Wireless (SWIR:$22.72) Listed (12/24) at $22.33.  Support:  $22

NEW ADDITIONS: (note: Not Buy recommendations, just positive technical patterns requiring additional research.

Cardtronics (CATM: $41.66)  Listed here (1/13/14) at $43.88. No longer technically attractive. Down on a good market day. Has had wild swings in the past, so a rebound is possible. High risk. Discontinue coverage.

RPM Int’l ($43.11)  Listed here (1/13/14) at $43.09. Support: $42.60

Silicom Ltd (SILC:$46.99)  Listed here (1/13/14) at $46.44.  Support: $46.50

Bitauto (BITA: $35.33)  Listed here (1/13/14) at  $36.44.  Support: $34.60

Avery (AVY: $51.27)  Listed here  (1/13/14) at $50.88.  Support: $51

Alexion Pharm.(ALXN: 137.66$) Listed here (1/13/14)  at $135.21.Support:$135

NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS

THE ECONOMY:

While the number of economic reports is light, there are  several key ones, especially  those for housing.

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.”

TUESDAY:

NFIB Small Business Optimism Ix. (7:30) Dec. rose  4 pts. To 93.9 vs 92.5 Nov.

ICSC Goldman Store Sales (7:45) Weather blamed for 1.0 pct. drop in chain store sales – week ended Jan 11.

Retail Sales (8:30) Dec. retail sales up 0.2 pct.

Import/Export Prices (8:30)

Business Inventories (10:00) Nov. +0.4 pct.. Stock to sales ratio: 1.29

WEDNESDAY;

Producer Price Ix. (8:30) Proj:   Dec +0.4 pct. ; ex-food and energy +0.1 pct.

Empire State Mfg. Svy (8:30) Proj: Index Jan. 3.30

Beige Book (2:00)

THURSDAY:

Jobless Claims (8:30) Proj: For week 1/11/14  327,000 vs. 330,000 (1/4)

Consumer Price Ix. (8:30) Proj: Dec +0.3 pct  vs. Nov. flat; ex food/engy +0.1 pct.

Philly Fed Svy (10:00) Proj: Jan. 8.7  vs, 7.0 Dec

Housing Mkt. Ix. (10:00) Proj:  Index Jan. 57.5  vs. 58.0 Dec

FRIDAY:

Housing Starts (8:30) Proj: Dec 0.985 million-unit rate vs. 1.091 mil.-unit rate Nov

Industrial Production (9:15) Proj:Dec + 0.3 pct.

Consumer Sentiment (9:55) Proj: Jan index 83.5 vs. 82.5 Dec.

JOLTS (10:00) – Job Opening Labor Turnover Svy  Proj: Nov. 3.930 million vs. 3.925 mil. Oct.

 

RECENT POSTS – 2013

Dec 26  DJIA 16,357  Year End Opportunities

Dec 27  DJIA 16,479  January 2014 Profit-Taking Will Hit Certain Stocks

Dec 30  DJIA  16,478 Be Prepared to Take Advantage of  5% January Correction

Dec 31  DJIA 16,504  Forecast: Get Ready for a Wild Ride !

2014

Jan 2     DJIA 16,504  A Raging Bull, but Corrections Offer Opportunities

Jan 3     DJIA 16,441  More Downside in the Market ?

Jan 6     DJIA 16,469  Correction or New Up-Leg ?

Jan 7     DJIA 16,425  Market at Key Crossroad

Jan 8     DJIA 16,530  Market at Key Crossroad

Jan 9     DJIA 16,462  Bull/Bear Battle Continues – Toss Up, but…

Jan 10   DJIA 16,444  Stocks: Sharp Run Up, Or Down in January ?

Jan 13   DJIA 16,437 What’s Needed to Trigger a Surge or Slide in Stocks

Jan 14   DJIA  16,237How Ugly Can This Correction Get ?

* InvesTech Research, James Stack, Editor(www.investech.com  – 406/862-7777). This is clearly one of the nation’s best. Get a sample issue and see for yourself.

  George  Brooks

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

[email protected]

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. Brooks may buy or sell stocks referred to herein.