TODAY:
This bull market has been a prime endorsement to the bromide, “Bull markets climb a wall of worry.” The S&P 500 rose 175% in face of crises and concerns for the economy, Europe, China, Congress, the Mid-East, and a Fed taper.
Without those obstacles to overcome, shouldn’t the market be soaring ?
The key is, how much of this triumph over adversity has been discounted ?
We should get our answer soon.
I don’t think the bull cycle has run its course, but corrections are all part of bull markets. Before it’s over, we should see an increase in speculation in small company stocks and by the public investor.
Now that the holiday season is behind us, the Street will show its hand.
Bulls need a big day today and tomorrow, a surge above DJIA 16,588 (S&P 500: 1,848). For starters, the bears need a rally failure with a drop below DJIA 16,425 (S&P 500: 1,826) with continued selling throughout the week. .
Investor’s first read– a daily edge before the open
DJIA: 16.469
S&P 500: 1,831
Nasdaq Comp. 4,131:
Russell 2000: 1,156
Monday, Jan. 6, 2014 9:13
In recent weeks, I have warned of a Q1 correction with a strong possibility it could occur in January.
While the major market averages are down after two days of trading, it is unclear whether the correction I expected has started, or the selling in the new year is related to investors opting to take profits in the 2014 tax year rather than 2013.
We had 11 corrections of 5% or more last year with two exceeding 15%.* 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. Like a morning fog, they arrive, then suddenly lift.
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.
It only makes sense that investors with sizable gains in 2013, will opt to put those gains in 2014 and delay paying the tax.
Expect selling pressure in 2013’s winners. If the selling is intense it will carry over to other stocks and even send buyers to the sidelines.
As noted Thursday, Odds favor a January correction (4.5% – 6.3%). If not in January, then during Q1.
. TWITTER:
Last Tuesday I said Twitter (TWTR)could “slip to$ 50.85 then bounce to $59… that I may track it for wild-eyed, gutsy, and deep pocket traders. If I am off-target today, I may opt out.” It didn’t decline, but rose moderately. While trading was shortened Tuesday, I was surprised it couldn’t follow through on its 21% plunge the preceding two days before rebounding. We’ll see today. A move above $65.22 suggests it has stabilized. A break below $60 suggests otherwise. It has topped $65 in pre-market trading. I’m not in sych with TWTR, won’t track it now, but may in the future.
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 GOING TO REPEAT THE FOLLOWING TO MAINTAIN 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 to May1 period. Seven of those started in January, two in December and four in February.
TIMING – OPPORTUNITY STOCKS New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns. All on the drawing board.
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: $540.98) Positive.
Broke expected support, is now at primary $540 support. Best case for AAPL now is a sideways trading range. It had some heavy volume at the close Friday but at lower prices. That is OK if it was a cleanup block, not good if buyers can’t hold the line at $540.
Facebook (FB:$54.55) Positive
Rally failure suggests sellers are still there and can depress FB lower. This has been a sloppy 3-day rebound. Support at $53.50 must hold or FB at risk of a drop to $50.75.
IBM (IBM:$186.64) Positive
Hanging tough with a bounce after ugly day. Friday’s action slightly improved its pattern.
Pulte Homes (PHM: $20.04) Positive
There is a lot of resistance in the $20 area. Can drop to $19.15 near-term.
First Solar (FSLR:$56.74) Neutral, needs move across $58 to turn positive.
Thursday was a huge day for FSLR with a $2.80 up-move in a crap market. Could be in response to a Jan. 2, Seeking Alpha article by EquityFlux,, “Solar Outlook 2014,” with a lot of good things to say about FSLR. Needs to sustain a move across $58. It rose to $58.30 yesterday, but failed to hold the gain.
Nike (NKE:$78.03) Positive
Unable to punch through Resistance at $79 on five tries. Move across $79 would improve pattern and pave the way for an attack of 52-week high of $80.28, but NKE hitting a wall. . Can slip to $77.30 in soft market.
Hewlett-Packard (HPQ:$28.34) Positive.
Buyers yesterday improved a weakening pattern. Support is $28
Polaris Inds. (PII:$144.62) Positive
Got hit by sellers yesterday and Thursday – Probably profit takers. Should now drop to $143 before rebounding.
Amazon (AMZN: $396.44) Positive
Got hit by sellers at $405, preventing a breakout and run across $410. Stabilized Tuesday above $393 and rebounded on increasing volume. Friday was disappointing as sellers appeared to hit it when it rose above $400.
Pandora Media (P:$27.59) Positive.
Friday’s rebound secures support ast$26.50. Resistance is $28.65.
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
ALERT LIST: IF WE GET THE CORRECTION I EXPECT< I MAY HAVE TO MAKE CHANGES IN SOME OF THESE STOCKS OR PROJECT SUPPORT LEVELS WHERE THEY WILL BE TECHNICALLY ATTRACTIVE AGAIN.
Align Technologies (ALGN:$57.17) Listed here (12/23) at $57.03
Gentex (GNTX: $32.30) Listed here (12/23) at $32.64. Now correcting up-move ($29 – $34) three weeks ago Can drop to $31.35
Netease (NTES: $78.21) Listed here (12/23) at $74.51
Spirit Airlines (SAVE: $47.58) Listed here (12/23) at $46.06)
Valeant Pharm (VRX: $117.16)Listed here (12/23) at $112
Dycom (DY:27.50) Listed here (12/23)12/23) at $28.05
Cognex (CGNX: $38.10)Listed here (12/23) at $36.09. Support $36.30.
Salex Pharm. (SLXP: $91.20) Listed here (12/23) at $87.61
Natus Medical (BABY:$22.76) Listed here (12/24) at $22.80
Sierra Wireless (SWIR:$24,93) Listed (12/24) at $22.33
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. Also, the FOMC releases its minutes which may shed light on the timing of future tapers.
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:
Factory Orders (10:00) Projected: Nov. +1.6 pct. vs. drop of 0.9 pct Oct.
ISM Non-Mfg. Ix. (10:00) Projected: Dec. index 54.8 vs. 59.3 Nov.. New orders solid at 56.4
TUESDAY:
FOMC meets
International Trade (8:30) Projected: Nov. $39.9 billion
Fed’s Rosengren speaks (8:30)
Fed’s Williams speaks (2:10 p.m.)
WEDNESDAY:
ADP Employment (8:15) Projected: Dec.205,000 vs. 196,000 Nov.
FOMC minutes (2:00p.m.)
Consumer Credit (3:00p.m.) Projected: Nov. +$14.3 billion vs. +$18.2 billion Oct.
THURSDAY:
Jobless Claims (8:30) Projected:331,000 for week 1/2/14 vs. 339 for prior week
Fed’s George speaks (1:30p.m.)
Fed’s Kocherlakota speaks (8:00p.m.)
FRIDAY:
Employment Situation (8:30) Projected: Nonfarm payrolls Dec. 200,000 vs. 203,000 Nov. / Private payrolls189,000 vs. 196,000 Nov. and 214,999 Oct.
Wholesale Trade (10:00) Projected:
Fed’s Bullard speaks (1:05p.m.)
RECENT POSTS – 2013
Dec 13 DJIA15,739 “Best Six Months Ahead ? Not Without an Ugly Correction in
; the Interim”
Dec 16 DJIA January 30 Taper ? If So, Fed Needs to Schedule a Press
Conference – a Tip off”
Dec 17 DJIA 15,755 Fed to Taper January 30 ? It Should, Here’s Why
Dec 19 DJIA 15,875 Taper Today=Sell Off Followed by a rally – No
No Taper=Rally Followed by a sell off”
Dec 23, DJIA 16,221 New Feature : “Technical “Alert” List.”
Dec 24 DJIA 16,294 Buyer Panic ? Or Seller Ambush ?
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 DJIA16,504 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 MJore Downside in the Market ?
* 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”
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.
