The case for a correction is that the market is up some 15% this year, and new buyers may become wary and investors with gains may do some selling..
The case against a correction is there is so much cash out there looking for a return, buyers simply overwhelm sellers. What’s more, once investors sell, they then have cash to invest. The cycle continues until buyers have a better alternative to stocks.
The imbalance of buyers vs. sellers is confirmed by the fact the market rebounds so quickly after pulling back for several days. Money managers are pressured for performance and get paid to put client’s cash to work. Unless they can justify sitting on cash, they will buy stocks.
For a correction to occur, buyers would have to cut back on commitments, or selling would have to increase dramatically.
Generally, May is the time of the year for selling to match or exceed buying, primarily because the period between September and May has traditionally featured a rising market.
This seasonal pattern was detected and popularized by the Stock Trader’s Almanac with its studies on the “Best Six Months” for investing (Nov. 1 to May 1) and “Worst Six Months” for investing (May 1 to Nov.1). The latter prompted the jingle, “Sell in May and Go Away.”
The intensity of the market’s rebound when prices pull back will give us a clue as to whether a more sizable correction of 5% + will develop. An immediate sharp rebound indicates the pac-man buyers are still eager to buy. A spastic rebound would indicate temporary fatigue and a deeper correction, or sideways consolidation is imminent. Yesterday, I posted the analogy of the difference between the bounce of a golf ball and an old soft ball.
Investor’s first read – an edge before the open
S&P 500: 1,633.77
Nasdaq Comp.: 3,438.79
Russell 2000: 973.79
Tuesday, May 14, 2013 (9:13 a.m.)
Apple (AAPL: $454.74)
Sellers put a lid on AAPL Tuesday and Wednesday at $465 were there again Friday and yesterday at progressively lower prices. Some buying did show up at $451.50, enough to produce a modest gain of $1.77 yesterday, but not enough to override the selling. There is a chance it can drop to the $436 – $443 area. It has had a 21% move in less than a month. Some profit taking is to be expected, but buyers will soon be looking for a price to enter.
I am not long or short AAPL.
FACEBOOK (FB – $26.82)
FB tried to turn up last Thursday, but ran into a seller at $27.50. While Friday was a downer, yesterday found support at $26.53 where it rallied sharply across $27 but once again a seller appeared wiping out a nice gain for the day. A spike down to $26 is still possible. Clearly, FB needs a sizable buyer to take out the sellers who are hovering a smidge below $27.50.
I am not long or short Facebook.
SEQUESTER: Stay tuned, it is starting to hit. Erskin Bowles told CNBC Squawk Box recently sequester is a “stupid” way to handle deficit reduction.
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.
We have a full docket of economic reports this week. For access to information including charts and graphics go to www.mam.econoday.com .
This week it highlights the JOLTS report, an acronym for Job Openings and Labor Turnover Survey, a Bureau of Labor Statistics (BLS) survey collected from employers each month encompassing employment, job openings, recruitment, hires and fires (separations). The data is used by the government for analyzing the state of the economy and planning. The guidance section of the FOMC is more and more indicator-based and JOLTS is o9ne of the indicators it tracks.
It tends to lag the Employment Situation report by one month.
There were 3,844 million jobs openings at the end of March, vs. 3,899 the month before, suggesting a continuing soft job market.
NFIB Small Business Optimism Ix. 7:30): Proj. 90.5
ICSC-Goldman Store Sales (7:45)
Import/Export5 Prices (8:30): Import prices – 0.5% Export -0.1%
Producer Price Ix.(8:30) Proj. -0.7% ex food/energy +0.2%
Empire State Mfg. Ix. (8:30) Proj. 3.75
Industrial Production (9:15) Proj. -0.2%
Housing Market Ix. 10:00) Proj. 44
Consumer Price Ix. (8:30) Proj. -0.3% ex food/energy +0.2%
Housing Starts.(10:00) Proj. 969,000 rate Permits 945,000 rate
Jobless Claims (8:30) Proj. 330,000
Philadelphia Fed Svy(10:00) Proj. 2.2
Consumer Sentiment (9:55) 78.0
Leading (economic) Indicators (10:00) Proj. +0.3%
“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.