Was the eight-day, 4.4% correction, starting on May 24 enough to flush out profit-takers and nervous investors ?
I was looking for 4% to 8%, but the sharp rebound last Thursday and Friday reminds us money managers are still itching to buy stocks on weakness, not because they wouldn’t rather wait and buy at lower prices, but because they know others will be in there ahead of them.
Until there is a more attractive alternative, or money managers are sure a sizable drop is imminent, their combined “buying power” will remain huge. Every sale of stock results in cash that must then be reinvested.
Those are the positives. Negatives include the seasonal tendency for the May – September months to underperform, as well as for fears that the Fed may soon reduce its policy of stimulating the economy, also referred to a “tapering.”
Would tap dancing be more descriptive ?
The Street doesn’t want the Fed to back off. As a result, it prefers sub par growth in the economy to buoyant growth.
CONCLUSION:
I think this bull market will end with rampant speculation in small stocks. That may not happen for another two years. In the interim there will be a sizable correction, or a couple smaller ones, but generally the tone will be positive.
Odds favor the sizable correction would accompany a Fed decision to back out of its asset purchases, but I see that as a great buying opportunity. Interest rates can rise in tandem with stocks, at least until they become injurious to economic growth.
Does anyone really think the Fed hasn’t thought this out with a Plan “A,” Plan “B,” even a Plan “C” ?
If the Street (and financial press) hype the fear of Fed tapering enough, it may be a non-event when the definitive news hits headlines.
TODAY:
I don’t think angst about Fed tapering will go away, the press won’t let it. As a result volatility will heighten causing the market to range sideways between DJIA 15,000 and 15,400 (S&P 500 1,620 and 1,660).
Investor’s first read – an edge before the open
DJIA: 15,248.12
S&P 500: 1,643.38
Nasdaq Comp.: 3,469.21
Russell 2000: 982.62
Monday, June 10, 2013 (9:08 a.m.)
NOTE: I am considering adding stocks to this blog, but haven’t decided on a format. I picked up Facebook when it was $34 shortly after its $38 IPO because I thought it was enormously overpriced and wanted to target a bottom for its imminent decline, which I did at $18. Likewise, AAPL when it was in a tailspin at $540 late last year. I write this letter between 8:30 and 9:12 after reading morning news starting at 7 a.m. Overnight news can impact the market, as well as stocks, so I can’t work too far in advance. I like to get a look at pre-market trading in both the stock market and individual stocks per chance there is a change shortly before the open. This keeps commentary on stocks on a short leash !
Apple (AAPL: $441.81)
Thanks to a sharp rebound in the overall market Friday, AAPL was able to snap back before touching my $427 – $431 support level. Its technical pattern is improving. Overhead supply starts at $446. It will unveil its new version of software that powers its iPhones and iPads at an annual developers’ conference today, which may be enough of a nudge to push it across $450. Support is now $437 – $438.
FACEBOOK (FB – $23.29)
No change. FB is in the process of probing for support after a one-month, 20% slide. Looks like buying came in again Friday after a modest bounce Thursday. It should find support at $23. Buyers and sellers are more evenly matched now than in recent days. The $19 – $22 area represents major long-term support. I’m not sure the Street will let it get down there. The stock has its detractors, but at these levels, they have got to be getting nervous about trashing this stock.
ECONOMY:
We have a light schedule for economic reports this week. For access to information including charts and graphics go to www.mam.econoday.com . Great site !
TUESDAY:
NFIB Small Business Optimism (7:30)
ICSC-Goldman Store Sales (7:45)
JOLTS (10:00) – “Job Openings and Labor Turnover Survey” proj: 3.844 mil. for
March vs, 3,899 in Feb.
Wholesale Trade (10:00) Proj: +0.2% for Apr. 13
WEDNESDAY:
Treasury Budget (2:00) – showed a $112.9 bil. surplus in Apr.
THURSDAY:
Jobless Claims (8:30) Proj. 350,000 for week Jun 8
Retail Sales (8:30) Proj. +0.4% for week May 13
Import/Export Prices (8:30) Proj: flat
Business Inventories (10:00) Proj. +0.3%
FRIDAY:
Producer Prices (8:30) Proj. +0.2%
Current Account (8:30) Proj. minus $111.2 bil.
Industrial Production (9:15) +0.2%
Consumer Sentiment (9:15) Proj. 84.5
RECENT POSTS: 2013
May 28 DJIA 15,303 “Key Rally”
May 29 DJIA 15,409 “Bulls, Not Bears, to Signal Start of Correction”
May 30 DJIA 15302 “Key Juncture for Market’s Near-Term Direction”
May 31 DJIA 15,324 “Bulls Must Step In – Now !”
June 3 DJIA 15,115 “Bulls Must Regain Control to Avert Correction”
June 4 DJIA 15,254 “Bulls Need to Follow Through Today”
June 5 DJIA 15,177 “Fed Tapering Watch”
June 6 DJIA 14,960 “Market to March to Fed “Taper” News”
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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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