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 read– Daily 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”
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