Easy Does It! Dow 20,000, But Not in a Straight Line

George Brooks |

New all-time highs again? Feeling like you better go all-in?

    That’s a normal human reaction to a “teaser” market that has edged up relentlessly for nine days on top of a bull market that sports a 191% gain in the S&P 500 over a bit more than five years.

      I am still bullish on both the economy and stock market and encouraged by the ECB’s efforts to stimulate euro-economies. 

      I want to caution here against euphoria and/or a sudden urgency to make a total plunge into the market for fear of “missing” the big move.

      I can see the possibility of a DJIA above 20,000 before this bull ends. Sounds a bit wild, but that would only take a 19% move from current levels.

      We have not seen rank speculation yet where all individual investors feel it is safe to come in off the sidelines, overwhelmed by an “I can’t stand it anymore” compulsion to get in on the feast.

       TODAY:

What’s my point?

       Keep your cool. A quick 3-to-6 day shakeout is least expected, which gives it a chance of happening. That shakeout can get worse if unexpected negatives hit the market as it is about to turn up.

        There is no question that the U.S. economy is firming after the restraints of a harsh winter. The key is how much of that has already been discounted by the rise in stock prices.

        The Street is currently crunching numbers. If it concludes the U.S. economy and those abroad are about to gain significant traction we are looking at 1,000 points up for the DJIA, and some wild action in smaller company stocks.

      We are at that kind of threshold now.

       If not, I see a sideways trading range with plenty of opportunities for good timers.

      Minor support today is DJIA: 16,828; S&P 500: 1,939; Nasdaq Comp: 4,294. Breaking those levels, look for DJIA: 16,811; S&P 500: 1,936; Nasdaq Comp.: 4,281.

       Today’s upside potential: DJIA 16,932; S&P 500: 1,949; Nasdaq: 4,324.

Investor’s first readDaily edge before the open

DJIA:  16,836

S&P 500:  1,940

Nasdaq  Comp.: 4,296

Russell 2000:    1,153

Friday,  June  6, 2014      9:15 a.m.

   

 NOTE:    

      Two new monthly economic reports reflecting international activity appeared on my economic calendar this week (see below). The Global Composite PMI covers global manufacturing and services for countries, including U.S., Japan, Germany, France, China and UK (85% global GDP) and the Global Services PMI report covering the international service sector(80% global GDP).

.      The Global PMI index rose in May to 54.3 from 52.8 in April; the Global Services index for May rose to 54.6 from 52.7 in April, both reflecting economic expansion here and abroad. Results are reported and included in my economic calendar each, my source is econoday.com. (site is well worth visiting).

TODAY:

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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.

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Sell in May and Go Away??

    So far this popular bromide has been misleading.

   While May has offered a number of timely exits, 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-fake

   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.  

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HOUSING:

      I began to track these housing stocks, hoping to gain some insight into the strength of the economic recovery emerging from a severe winter.

      My reasoning was that a robust economic recovery cannot develop without a contribution from the housing sector.

      The sector is stable with spikes up, but sellers are quick to enter to turn them down.

          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.

      Yesterday, all but BZH rebounded from consolidations on increased volume. This could be significant for a group that few think can gain traction. The stability in this group suggests a lot of negatives have been discounted in the stock’s prices. But, another spike upward suggests the Street still gives housing a chance of participating, possibly driving economic growth.

     

    PARTIAL LIST :

Beazer Homes  (BZH) :   $18.81

PulteCorp ($PHM):  $19.88

Toll Brothers (TOL) :  $33.37

KB Homes  (KBH) : $16.76

DR Horton  (DHI) : $24.00

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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): May up to 56.4 from 55.4 Apr. – New Orders solid 58.8

ISM Mfg. Ix. (10:00): May up to 55.4 (after correction of 53.2) vs 54.9 Apr. – New Orders up to 56.9 from 55.1)

Construction Spending (10:00): Up 0.2 pct. in Apr.  vs. gain of 0.6 in Mar.  Projection was for gain of 0.7 pct..

TUESDAY:

ICSC Goldman Store Sales (7:45) Jumped sharply 2.9 pct. in My  31 week vs. 4.2 pct. week before

Motor Vehicle Sales: Apr. light motor vehicles came in at a 16.0 million annual rate,  vs.  an annual rate of 16.5 million vehicles.

Factory Orders (10:00): Rose more than projected to +0.7 pct, unchanged from the prior month

Global Mfg. PMI (11:00):  The index for May’s manufacturing PMI was 52.2 vs 51.9 in Apr..                                                                                                                                                                                                                                                                               

WEDNESDAY:

MBA Mtg. Purchase Apps. (7:00): Declined 4.0 pct. in May 30 week;  Year/year now down 25 pct.. Refi’s declined 3.0 pct.

ADP Employment Report (8:15): Non-Farm payrolls up 210,000 in May; 179,000 Private sector. Small business picks up.

Int’l Trade (8:30): Trade gap rose to $47.2 billion in Apr. from 44.2 billion in Mar.

Productivity/Costs (8:30): Q1 Productivity fell 3.2 pct. in Apr. (drop revised up from  minus 1.7%.  Severe winter weather blamed.

PMI Services Ix.(10:00)  Up sharply in May to 58.1 from 55.0 in Apr..

ISM Non-Mfg  Svcs(10:00): Up sharply in May to 56.3 from 55.7 in Apr.

THURSDAY:

Jobless Claims (8:30): Rose 8,000 to 312,000 for May 31 week

Global Composite PMI 11:00):

Global Services PMI (11:00):

FRIDAY:

Employment Situation (8:30): Non-Farm Employment up 217,000, Private Sector Employment up 216,000; Unemployment Rate 6.3%.

Consumer Credit (3:00):

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RECENT POSTS:

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

June 2    DJIA   16,717 Decision Time for Stocks ?

June 3    DJIA   16,743 Economy “Must” Accelerate,  or…

June 4    DJIA   16,722 Bulls Must Pick it Up, or Lose the Ball

*Bloomberg

**Stock Trader’s Almanac

 

A Game-On Analysis,  LLC publication

George  Brooks

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

Brooks007read@aol.com

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
KBH KB Home 15.07 -0.01 -0.07 1,797,239
BZH Beazer Homes USA Inc. 13.30 0.36 2.78 1,005,694
TOL Toll Brothers Inc. 29.32 0.18 0.62 3,045,963
DHI D.R. Horton Inc. 27.28 -0.03 -0.11 4,258,152
PHM PulteGroup Inc. 18.31 -0.08 -0.44 4,023,126
HLSTY Hallenstein G/H Unsp/Adr n/a n/a n/a 0

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