Early Profit Taking or Warning of a Correction?

George Brooks |

  There is some evidence of  a flight to quality (blue chips) from stocks slightly below that level that have performed well over the last 12 months.  That would account for  softness in the latter and strength in the former.

   While the DJIA and S&P 500 have gained  26% and  32% respectively over the last 12 months, a lot of lesser  known stocks have gained far more, but in recent weeks have been under selling pressure.  To mention a few: Priceline (PCLN), Gilead Sciences (GILD), Netflix (NFLX), Tyler Technology (TYL),Pioneer Natural Resources, Ocwen Financial (OCN), Celgene (CELG).

   While too early to draw hard conclusions, the “contrary” behavior of the Nasdaq Comp. and Russell 2000 adds credibility to this idea.

   What does this mean  ?

   For one, it could foretell a correction, i.e. institutions are running for cover.

   Or, it could mean institutions and  the BIG money are taking profits ahead of year-end. 

   While there are a lot of 2013’s winners posting new highs, these stocks my be vulnerable to profit-taking and the sellers may opt to do it well before year-end.

    Bottom line:It is becoming risky to chase a stock that has posted a big gain over the past year and which is still hitting new highs. The other side of that coin is,  stocks that have been big winners over the last 6 – 12 months, may become attractive as a result of profit-taking.

    The year-end has always been marked by a lot of cross currents – profit taking, institutional portfolio window dressing, pressure on money managers to raise cash or put cash to work. Throw the disruption of three holidays in there, long weekends, travel, etc. and it is a mixed bag.

TODAY:

   As a result  of the European Central Bank’s (ECB) cut of its benchmark interest rate one quarter of a percentage point to 0.25%, the U.S. stock markets will open on the upside.  The cut is designed to accelerate  Europe’s recovery from recession, which obviously will benefit the U.S. economic recovery, as well.

   Since we are going into today with the DJIA and S&P 500 hitting new highs, but the Nasdaq Composite and Russell 2000 not following suit,  it will be important to see if the disparity continues.

   Buying the open is risky.

Investor’s first reada daily edge before the open

DJIA: 15,746

S&P 500: 1,770

Nasdaq  Comp.3,931

Russell 2000: 1,098

Thursday, Nov. 7, 2013     (9:01 a.m.)

 

      TECH WATCH:   Changes: Adding Nike (NKE), Polaris Industries (PII) and  Pandora (P) and dropping Target (TGT) and eBay (EBAY).

   I am considering the elimination of the Tech Watch section and offering it in a separate publication on a subscription basis.

I would be able to cover more companies, and would not be constrained by a pre-market deadline. Comments welcome: sensiblesleuth@gmail.com. Include opinion about how you think I could even improve commentary bearing in mind these are NOT buy/sell comments.

   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: $520.92) Positive.

Remains in consolidation. Must break up through $528 to give it a shot at $540 and above.  Without news, AAPL can range sideways between $516 and $526 with a slight chance of a slip to $509 - $510.

Facebook (FB: $49.12) Positive

Opened strong, but got hit by a seller, probably profit-taking by investors who were prescient and gutsy enough to defy the Street’s negative bias earlier in the year when it traded below $30. This kind of selling will just have to run its course. Resistance is now $50. Support is $48.70.

IBM (IBM: $179.19)  Negative, but has the potential now to turn positive.

 I picked up on IBM since it seemed unreasonably beaten up, like AAPL when all its new best friends who made tons of money on it left it in the lurch when its growth rate slowed. I was poised to target a bottom close to $160, but so far it looks like it can base above $174.  Stock is tracing out a six-day consolidation. Break above $180 raises odds IBM can turn positive with a further move to $184 - $185.  There is a seller at $179.70 to work through and that will require a sharp increase in volume.

Pulte Homes (PHM: $17.77)  Positive

 Firmed up yesterday, but has its work cut out for it cutting through resistance at $18 - $18.20.  While no one thinks an early taper (Dec./Jan.) is possible, there are those on the Street that think it is, and that could temper enthusiasm for housing stocks.

First Solar (FSLR:$61.14)  Positive

No change:Blowout earnings last week prompted buying and panicky short covering.  Stock can go higher, but could sneak down to  $59.65 first. Resistance is $61.85.

Nike (NKE:$76.76) Positive

Breakout at the open yesterday met with a seller taking NKE down to $76.16. Break above $77.35 needed to pave way to $80s. Stock up more than 70% over a year ago, some profit-taking normal. Slip to $76.25 today should attract some buyers.

Hewlett-Packard (HPQ: $25.61)  Positive

Recent  strength was due to its $3.5 billion order from the U.S. Navy. Stock is consolidating Friday’s jump in price. Found  a buyer at  $25.50.  Resistance is $25.70. Breaking that could take HPQ to $26 - $27 near-term.

Polaris Inds. (PII:130.27)  Positive

Up 59% since May.  Rally at the open yesterday met a seller.  Support is now $129.50. Resistance at $130.60 may not be great enough to prevent  a renewal of PII’s uptrend.

 Amazon (AMZN: $356.18) Positive

No change:In an upbeat market, AMZN could move across $375. Raymond James’ Aaron Kessler’s  raised his rating to Strong Buy from Market Perform with a price target of $446.  Rally at the open yesterday met with a seller suggesting AMZN will need to consolidate before running higher. In the interim stock could slip to $346.

Pandora Media (P:$27.37) Positive.

Pandora’s $2.21 jump Tuesday was in response to positive news  about gains in share and active listeners in the U.S. radio market. The timing of the news was right, coming after an 11-day sideways-to-down consolidation. Stock  dropped  to $27.35 which should hold.   A high-volume break above $28.25 is needed for a move into the low $30s.

THE ECONOMY:

While the economic reports released this week are few in number, they are significant.   Though the accuracy of these reports may still be suspect due to the shutdown, the Street will be watching for clues about the economy’s strength, since it will influence  the timing of Fed taper.. Bernanke speaks at 3:30p.m. Friday.

   For a detailed account of past and current economic reports, including charts go to: mam.econoday.com - www.mam.econoday.com

MONDAY:

Factory Orders (10:00)  Rose1.7 pct in Sept. vs. declines of 0.1 pct Aug, 2.8 pct July

Fed’s Powell speaks (11:40)

Fed’s Rosengran speaks (4:00 p.m.)

TUESDAY:

ISM Non-Mfg.Ix. (10:00)  Oct. index  for Oct. 55.4 vs. Sept. 54.5

Fed’s Lacker speaks (12:30 p.m.)

Fed’s Williams speaks (5:10p.m.)

WEDNESDAY:

Leading Indicators (10:00)  Sept. +0.7pct.

Fed’s Pianalto speaks (1:0 p.m.)

THURSDAY:

Jobless Claims (8:30)  For week 11/2 claims dropped 9,000 to  336,000

GDP (8:30) PROJ.: 3rd estimate  Q3 +2,0 pct. annual rate

Fed’s Stein speaks (9:10)

FRIDAY:

Employment Situation (8:30) PROJ.: October 120,000, Private payrolls: 128,000. Unemployment rate 7.3 pct.

Personal Income/Outlays (9:55)PROJ.: Sept: +0.3 pct.

Consumer Sentiment (9:55)PROJ.: Nov. index: 75.0 vs. 73.2 Oct.

Fed’s Lockhart speaks (12:00p.m.)

Fed Chief Bernanke speaks (3:30p.m.)

 

RECENT POSTS - 2013

Oct 25 DJIA   15,509   “Best Six Months for Owning Stocks”

Oct 28 DJIA   15,570   “Do I Detect Speculative “Fever “ ? If So, What Can  

                                       Happen”

Oct 29 DJIA   15,568  “ When Will the Small Investor Plunge ?”

Oct 30 DJIA   15,680  “Don’t Rule Out Fed Taper by Year-End”

Oct 31 DJIA   15,618  “Easy Does It ! Market Nervous, Needs Breather”

Nov 1  DJIA   15,545  “Rally Failure, Correction to Continue ?

Nov 4  DJIA   15,615  “Room to Run – Just Ditch the Blinders”

Nov 5  DJIA   15,639  “Market Crossroads – Which Way ?

Nov 6  DJIA  15,618   “Bulls Hold the Edge, But What About Interest Rates ?

 

  George  Brooks

“Investor’s first read – an edge before the open”

sensiblesleuth@gmail.com

*STOCK TRADERS ALMANAC: The new annual Stock Trader’s Almanac  is off the press.  This is a “must,” always has been, if you are a serious  investor, or intend to be a serious investor. Visit stocktradersalmanac.com for details

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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. Brooks may buy or sell stocks referred to herein.

 

 

 

 

 

 

 

 

 

 

 

 

 

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Symbol Name Price Change % Volume
PMGA Pharmaglobe Amer Grp Inc 0.00 0.00 0.00 0

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