The best computer is the human brain. Wall Street’s preoccupation with computerized decisions and reactions has taken investing to an unhealthy casino high. A hacker used an AP Twitter to spread a false rumor about a bombing at the White House and stupid computers acted stupidly cancelling buy orders and entering sell orders.
Like I said weeks ago, this was once a wonderful business, not riskless, but based more on longer term fundamentals. Fast money rules.
Back to reality. I am uneasy about what I referred to Friday as a “greenstick fracture, a prelude to a bigger correction.
This coincides with the end of the “Best Six Months for Owning Stocks (November 1 to May 1).* The period from May 1 to November 1 underperforms. That does not mean the entire six month period sucks. Buying opportunities occurred in each of the last three years.
Guaranteed to happen again ?
No seasonal pattern is 100% consistent, but odds favor this one is spot on.
Push comes to shove, I opt for preservation of capital, which can be complicated at times in light of what earnings reports can do to a stock if guidance is reduced or earnings don’t “beat” estimates by enough.
What investors don’t want to do is spend the next rally climbing out a hole untimely purchases caused.
Economic indicators are mixed. Housing numbers are good, but prices of materials are on the rise. Durable Goods, the PMI Manufacturing Index and Richmond Manufacturing Index are soft.
This is not a market where buy decisions should be in an automatic pilot mode. A greenstick fracture can graduate to a full fracture taking a 3% - 5% correction into a 9% - 12% decline. The difference between the two lies in what news hits the market when it has completed a 5% correction.
Bulls still have the ball, but this week is key, technically.
Support is DJIA 14,586 (S&P 500: 1,565
Investor’s first read – an edge before the open
Nasdaq Comp.: 3,269.33
Russell 2000: 929.36
Wednesday, April 24, 2013 (9:12 a.m.)
SEQUESTER: Stay tuned, it may become a factor.
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 of 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.
Apple (AAPL: $406.13) Prospect for a drop below $370 selling climax increases.
AAPL’s Q2 report came last night and the stock jumped in early after hours trading, but gave it back within 90 minutes.. I imagine the buying was a combo of buying by investors and short covering.
Whether the report was good or bad depends on who’s opinion you read. Headlines varied from “Apple Posts Big Beat on Strong iPhone Sales” to “Apple Earnings Fall, Narrowly beat Street View.”
I am assuming readers have read the report, too detailed to summarize here where I will limit my comments to the “technical” side. The company will buy back shares and increase its dividend. Its cash hoard is now $145 billion. I don’t think either move surprises anyone, so it’s up to the numbers crunchers whether AAPL has finally turned the corner. Clearly, its 44% drop from its September $705 high discounts a lot of slippage in fundamentals compared to recent years.
But, it is just going to have to find a comfort level where buyers can hold off sellers and begin advancing the stock if future fundamentals justify it.
While returning cash to shareholders appeals to some investors, it is worth mentioning that the price of its shares are automatically reduced on the day the stock goes ex-dividend, so the investor has some cash but a lower priced stock.
What I think the Street wants is encouragement that the company has innovative products lined up for the future, and it isn’t hearing much about that yet.
A failure to follow through today with strong buying indicates AAPL has to go lower to find enough buyers to offset selling and that may mean a drop below $370.
I am not long or short AAPL.
FACEBOOK (FB - $25.73)
My position on FB is unchanged, though it should have done better yesterday in an upbeat market. Actually, it gave up its gain for the day indicating a lack of aggressive buying needed to move higher.
There are some technical indicators that suggest FB is stronger now than when it reverser upward on March 23 from $24.72 and rose 14% by April 11.
However, a further decline in the market can take FB down further, $22, or so..
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.
I am not long or short Facebook.
Investors will be looking for assurance this week that the economy is not weakening seriously. Reports from the primary driver of our recovery, housing, will come Monday and Tuesday. Due to strong numbers in February, analysts are revising Q1 GDP estimates upward, some to 3%.
Durable Goods Orders (8:30)
Jobless Claims (8:30)
Bloomberg Consumer Comfort Ix. (9:45)
Kansas City Fed. Mfg. Ix.(11:00)
Consumer Sentiment (9:45)
*Stock Trader’s Almanac – Published annually – a must have. I bought my first in 1968.
“Investor’s first read – an edge before the open”
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