SUMMARY:
Both the DJIA and S&P 500 responded as projected yesterday on the initial drop, and its rebound. Yesterday was driven mostly by emotions (fear, uncertainty). Today’s abrupt about-face has been triggered by Russian President Vladimir Putin’s comments that he would send troops to Ukraine only if necessary and that Russia does not plan to take over Crimea, though we can expect it to protect strategic military positions there.
So far, so good. The major market indices are rebounding sharply in pre-market trading. Worth noting, both the Nasdaq Composite and Russell 2000 closed near their highs for the day yesterday, suggesting investors saw the crisis as an opportunity to buy.
TODAY:
Today’s rebound is based on the assumption that the Russia/Ukraine crisis is over. Any suggestion that it is not will take the market back down.
Look for resistance to start at DJIA 16,324 (S&P 500: 1,864). After this initial move a pullback is possible to DJIA: 16,249 (S&P 500: 1,856).
Look for a break in winter weather this month to trigger a consumer surge in buying and a spring surge in stock prices.
The BIG money won’t wait for the winter ice to thaw. If it sees a little daylight it will pounce.
Investor’s first read– a daily edge before the open
DJIA: 16,168
S&P 500: 1,845
Nasdaq Comp.: 4,277
Russell 2000: 1,176
Tuesday, March 4, 2014, 2014 9:13 a.m.
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FED CHIEF YELLEN:
Fed chief Janet Yellen, testifying before the Senate Banking Committee last week, assured senators the Fed planned to continued its measured pace of tapering with the final taper expected in the fall, unless a softening in the economy justifies a change.
She did note that the unemployment rate of 6.5% is not cast in stone as a threshold for moving off its zero interest rate policy, that any decision on rates would be based on a broad range of indicators, a policy she referred to as “qualitative guidance.”
The second GDP estimate for Q4 came in at an annual rate of 2.4%, lower than the first estimate of 3.2% for GDP. This compares with Q3’ GDP rate of growth of 4.1%. The Fed will have to factor in a weaker final quarter of 2013 and what it means for Q1, since it wasn’t as heavily impacted by weather.
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A BEST SIX MONTHS to own stocks – No more corrections ???
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.
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1
Is this going to be another “BEST six months to own stocks ? . So far, the DJIA is ahead 5.4% since October 31, 2013 even with a 7% correction in the interim.
Over 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 year up 25.6% (1998 – 1999).
With the market off to a great start in October , it looked like a BEST six months was a no-brainer. This concerned me, since my research indicated that
prior to the January –February correction, I warned 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.
We have had one correction so far since October 31, another correction is possible, but unlikely barring an unforeseen crisis, which the Russian/Ukrain confrontation could possibly trigger.
Over the last 25 years, only two corrections occurred during the November 1 to May1 six months. 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.
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JANUARY BAROMETER
As January goes, so goes the stock market for the year, according to the January Barometer (JB).* The 3.6% drop in the S&P 500 in January suggests a very challenging year for investors and clearly not as rewarding as 2013 when the S&P 500 rose 29% after a 5.8% rise in the preceding January.
The JB boasts an 89% accuracy rate over the years with most of its misses explained by unpredictable events, such as war and extreme bull/bear turning points.
The rationale for the JB having predictable value is that a new year is accompanied by year-end and new year portfolio adjustments and decisions based on projections for the year ahead. It is also a time when institutions receive a lot of new money that must be put to work.
So far in 2014, the S&P 500 is unchanged. However, since January 31, its up 4.0%. Conclusion: As a barometer, it still suggests a challenging year for both bulls and bears.
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THE ECONOMY:
The economic calendar is loaded this week with both economic and housing reports.
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:Motor Vehicle Sales: Jan. sales were at a 15.2 mil. ann. Rate vs. 15.4 mil in Dec..
Personal Income/Outlays (8:30): Personal Income rose 0.3 pct. in Jan. vs no change Dec. Spending increased 0.4 pct. vs a 0.1 pct increase in Dec..
PMI Mfg. Ix,(8:30): Feb. jumped to 57.1 from 53.7 in Jan..
ISM Mfg.Ix.(10:00):Feb index rose 1.9 points to 53.2 from 51.3 Jan..
Construction Spending (10:00): Jan. up 0.1 pct. vs gain of 1.5 pct. Dec.
TUESDAY:
ICSC Goldman Store Sales (7:45): Up 0.3 pct. for Mar. 1 week. Year over year up 1.5 pct.
WEDNESDAY:
MBA Purchase Apps (7:00):
ADP Employment Report (8:15):
PMI Services Ix.(8:58):
ISM Non-Mfg, Ix.(10:00):
THURSDAY:
Jobless Claims (8:30):
Productivity/Costs (8:30):
Bloomberg Consumer Comfort Ix. (9:45):
Factory Orders (10:00)
FRIDAY:
Employment Situation (8:30):
International Trade (8:30):
Consumer Credit (3:00p.m.):
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RECENT POSTS:
2014
Feb 11 DJIA 15, 801 Market Crossroads – Up ? or Down ?
Feb 12 DJIA 15,994 Bulls in Charge, but……….
Feb 13 DJIA 15,963 Suddenly, Concern for the Economy
Feb 14 DJIA 16,027 Buyers Panicking ?
Feb 18 DJIA 16,154 A Brief Pause or More Upside ?
Feb 19 DJIA 16,130 Can Market Shake Off Ugly Housing Data ?
Feb 20 DJIA 16,040 Winter Slump – Spring Rebound ?
Feb 21 DJIA 16,133 Housing Hanging Tough – a Harbinger ?
Feb 24 DJIA 16,103 Bull Market – the Pressure to Act
Feb 25 DJIA 16,207 Rally Failure – or Start of Another Up Leg ?
Feb 26 DJIA 16,179 Monday’s Market Action – a Signal ?
Feb 27 DJIA 16,198 Market Setting Stage for an Early Spring Rally
Feb 28 DJIA 16,272 March Setting Stage for Spring Rally.
Mar 3 DJIA 16,321 Russian Bear Providing American Bull an Opportunity
George Brooks
“Investor’s first read – an edge before the open”
*Stock Trader’s Almanac
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. 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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