SUMMARY:
The Street wants to know if our economy is going to accelerate out of its winter slump. If it can’t, the stock market is overpriced. If it can, buyers will run the table.
So far, we’ve been fed bits and pieces with a positive bias. This week has the potential to answer the big question with a host of key economic reports scheduled (see “Weeks Economic Reports” below).
If the Street had a strong conviction, this market wouldn’t be locked in limbo.
The massage here may be we will have to wait longer to get a read on the economy.
Average price/earnings ratios over various periods of times are frequently used by bears in bull markets to justify the case for over-valuation, but the range of P/E’s has been so extreme over the years, an average is merely a guestimate.
An average can be skewed by the time period used. P/E’s set before the onset of heavy institutional dominance may not be as meaningful as those set after.
What is an acceptable time period for an average P?E – 100-years? Fifty years? Thirty years? And does it include a period where P/E’s hit an extreme high or low?
TODAY:
The stock market will get its marching orders from this week’s economic reports, since the growth of corporate earnings going forward will need a strong economy to grow the top line.
Look for a mixed open today with some slippage down to DJIA: 16,661; S&P 500: 1,922; Nasdaq Comp.: 4,237, followed by an attempt to rally. Depending on today’s PMI manufacturing (9:45), ISM manufacturing (10:00), and Construction Spending (10:00) reports, the possibility exists for a sharp rally.
Investor’s first read– Daily edge before the open
DJIA: 16,717
S&P 500: 1,923
Nasdaq Comp.:4,242
Russell 2000: 1,134
Monday, June 2, 2014 9:15 a.m.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
NOTE: I continue to run “Sell in May” and “Housing” for two reasons. One, this analysis is relevant and I add important content frequently. I get new readers, and I want them to have access to this insight.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Sell in May and Go Away ??
A popular jingle this time of the year for newsletters and journalists, May has offered a number of timely exits, but I don’t buy the “stay away” part, clearly not until November.
Based on the market’s strength since May 21, it looks like my contrariness is being rewarded. The DJIA closed at 16,580 on April 30, has undergone two corrections but is now higher than on May 1.
Both of those corrections looked like the beginning of something, but turned out to be head-fakes.
Undoubtedly, more corrections will lead “sell in May” investors to want to pack it in until November. For a while they will believe they were right, that is, until another sharp rally raises doubts.
Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). This is true, but as I have noted with the Best Six Months, a lot can happen in the interim.
This bromide can’t be taken as a “given.” Of the 26 years I studied a “top” occurred in May on 10 occasions ranging from May 1 to May 22. Two occurred in June and two in July. No meaningful top occurred in 12 of the years studied.
On far too many occasions over the last 26 years a May top was followed by a decline, but within months (well before Nov. 1) the market rallied sharply. I see it more as a trading opportunity – i.e. “Sell in May,” but be ready to buy back after a plunge.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
HOUSING:
The economy needs a contribution from the housing sector if it is going to gain major traction coming out of the winter slump.
Pending Home Sales rose 0.4 pct. in April vs. a gain of 3.4 pct. in March when it ended nine straight months of declines.
Inventories continue to drop along with falling mortgage rates, a combo that forces home prices upward, which should prompt a stampede to buy before available attractive homes are picked up. The problem, banks are not anxious to lend at such low rates and many buyers simply can’t qualify for mortgages.
Housing stocks got some buying two weeks ago which spilled into last week when sellers stepped in to put a lid on further appreciation.
There is buying interest based on hopes for renewed interest in the industry, but the buyers don’t have the firepower to plow through overhead supply.
PARTIAL LIST :
Beazer Homes (BZH) $19.57
PulteCorp ($PHM) : $19.56
Toll Brothers (TOL) : $36.22
KB Homes (KBH) : : $16.48
DR Horton (DHI) : $23.68
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
THIS WEEK’s ECONOMIC REPORTS:
Another big week for economic news. If it indicates the economy is charging out of its winter slump, money managers can expect to ramp up buying, assuming the outlook for corporate earnings will improve.
For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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:
PMI Mfg. Ix. (9:45):
ISM Mfg. Ix. (10:00):
Construction Spending (10:00):
TUESDAY:
ICSC Goldman Store Sales (7:45)
Motor Vehicle Sales:
Factory Orders (10:00):
Global Mfg. PMI (11:00):
WEDNESDAY:
MBA Mtg. Purchase Apps. (7:00):
ADP Employment Report (8:15):
Int’l Trade (8:30):
Productivity/Costs (8:30):
PMI Services Ix.(10:00)
THURSDAY:
Jobless Claims (8:30):
Global Composite PMI 11:00):
Global Services PMI (11:00):
FRIDAY:
Employment Situation (8:30):
Consumer Credit (3:00):
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:
May 13, DJIA 16,695 Bulls in Wings – Market Needs a Spark
May 14 DJIA 16, 715 What Could Spark a Surge or Plunge
May 15 DJIA 16,613 Market Needs Help from Economy, or…
May 16 DJIA 16,446 Bulls Blinked – But Don’t Get Too Bearish
May 19 DJIA 16,491 Stock Market Getting Ready for a Move ?
May 20 DJIA 16,511 Bull Still Alive
May 21 DJIA 16,374 Market Needs Help from Fed and Economy
May 22 DJIA 16,533 Again – Stock Market Set for a Big Move
May 27 DJIA 16,606 Market to Key on Week’s Economic Reports
May 28 DJIA 16,675 Stock Market Needs a Catalyst
May 29 DJIA 16,663 European Monetary Ease June 5 – a Catalyst ?
May 30, DJIA 16,698 A “Teaser” Market Capable of Big Moves Either Way
*Bloomberg
**Stock Trader’s Almanac
A Game-On Analysis, , LLC publication
George Brooks
“Investor’s first read – a daily edge before the open”
Investor’s first read, is a 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.
