Deterioration in Technicals Resumed

George Brooks |

Yesterday’s plunge in stock prices continued a pattern of deterioration in the technical factors accompanying the market averages that has been under way since mid-March. At best, Tuesday’s rally only delayed its acceleration.
The market needs more than a one-day technical rally here to avoid a correction, one that could develop into a major correction if new negatives hit it along the way.
What could trigger a sustainable rally ?

Better than expected Q1 earnings, for one. Strong numbers on the economy, for another. The latter would indicate our economic expansion is gaining enough traction to override any adverse impact from sequestration.
TODAY: Right now, we have to give the technical indicators the edge, since they reflect the Street’s expectations for the near- and intermediate-term outlook.
Any rally this morning should run into resistance at DJIA 14, 596 (S&P 500: 1,559). Near-term support is DJIA 14,452 (S&P 500: 1,548).
Breaking that, the next support level is DJIA 14,405 (S&P 500: 1,540).
Actually, a meaningful correction should carry lower to the DJIA 14,158 (S&P 500: 1,508) area.
Investor’s first read – an edge before the open
DJIA: 14,550.35
S&P 500: 1,553.69
Nasdaq Comp.: 3,218.60
Russell 2000:918.71
Thursday, April 4, 2013 (9:07 a. m.)
SEQUESTER: I’m keeping this posted so you don’t forget the market may begin to worry about its impact.
This week will feature some key economic reports (see below). 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 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.
CASE for CURRENT LEVEL OF STOCK PRICES:
It is important to note (again) that the stock market is at the same level where the bear market of 2007-2009 began. The difference now vs. then is we are not currently facing the horrendous string of adversities here and abroad we faced then. Real estate is recovering, corporations are sitting on huge stashes of cash, which must soon be spent, employment is improving, and there seems to be a greater willingness in Washington to address problems. Europe is on the mend.
We are not engaged in a full scale war, BUT I wouldn’t rule out U.S. intervention in the supply of aid to Syria from Iran.
Apple (AAPL: $431.96)
To its credit, AAPL was able to post a gain on an ugly day in the market as a whole yesterday. Nevertheless, it closed close to its low for the day, suggesting sellers were there to prevent a move higher. Yesterday was the 7th day in a row AAPL closed close to its low for the day, not a good sign. Resistance is $435.40. s There is minor support at $430.40 and $428. The more important support comes at $420. A break below that counts to $385 - $398.
AAPL looks like it could go either way in a big way depending on news or a major statement by a financial power. It’s very susceptible to news now.
Technically the pattern is ugly, but this company is a leader in a dynamic industry and is down 39% from its September high of $705. At some point the BIG money will see irresistible value. Most likely, these big hitters would like to see a flush to $385, and they could get that, unless others step in ahead of them.
Currently, the Street is concerned about its product refresh cycle, criticism by the Chinese government and its legal battles with Samsung. However, it acts as if something else is spooking buyers.
I am not long or short AAPL.
FACEBOOK (FB - $26.25)
FB had some nice buying yesterday. While it could have been short covering, it turned a negative pattern into a strong neutral pattern. Support is $25.50. Near-term resistance is $26.85.
If its strength reflected buying for fundamental reasons, its 12-day slide is over. If only short covering, it needs more work in the mid-20s.
Where did the selling come from between March 7 and Tuesday ?
Possibly from IPO investors whose shares came out of lock-up, the latest being 777 million shares freed up in mid-November. .
That would be good news, since no one can blame them from raising cash for other purposes, even if they could get a higher price in the future. If they genuinely feel the stock is not worth the mid-20s, FB’s stock has a problem.
Between Aug. and Dec. last year, a trading range between$18 and $24 developed. That should provide support for FB and a buying opportunity. That’s where a three month tug of war took place between the believers and non-believers.
Support is now $25, resistance is $25.90.
I am not long or short Facebook.
ECONOMY:
This will be a heavy week for economic reports.
But the Street is heartened by favorable economic data on employment, personal income, consumer sentiment, auto sales construction spending, durable goods manufacturing, and housing.
I am going to list the economic reports below but will not include the numbers from the last report, since those numbers are often revised significantly and therefore are potentially misleading.
I strongly urge you to access the website: www.mam.econoday.com for detailed reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports. The site does a great job graphically illustrating key indicators.
THURSDAY:
Jobless Claims (8:30)
FRIDAY:
Employment Situation Report (8:30)
International Trade (8:30)
Consumer Credit (3:00 p.m.)
George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com
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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.

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