FINALLY ! Good is accepted as good. The Street can welcome every indication that the economy is improving instead of withdrawing in horror when a good report is announced for fear the Fed will taper out of QE.
Of course, it won’t be long before they worry about the next taper, or the final taper, but the threshold has been crossed, it’s time to move on.
This incredible and unappreciated bull market has climbed a wall of worry so steep it leaned backward at times, as new negatives stacked it higher.
two things to keep in mind going forward.
ONE, the normal course for a bull market is for speculation to increasingly dominate trading leading to new leadership in riskier stocks, then on to low priced stock with no merit, except that they soar.
TWO, There will be small ($3% -5%) corrections along the way, as well as one or two nasty ones (8% – 14%). Be ready for both.
TODAY:
Yesterday’s “Taper Today = Sell Off Followed by a Rally” was spot on. When the FOMC announced it would reduce QE (taper) by $10 billion a month, the DJIA dropped 120 points in a matter of minutes, then rebounded as swiftly to go on to post a gain of 293 points. Its reaction contradicted its behavior dozens of times in the past when even the thought of a taper sent prices down.
Contrary thinking if essential for calling tough shots, but it must be used selectively. I prefaced my post yesterday with “Only a fool would risk a headline like that…but I see it that way, so why hedge ?” I saw the call as contrary to what the majority on the Street were thinking. That many people cannot be right.
That move will have to be digested by analysts, hedge funds, foreign investors, traders, money managers, writer, etc. and conclusions will vary.
The Fed promised to keep interest rates low through 2015. I am not sure market forces will permit it.
CONCLUSION:
This is still December with all its annoying crosscurrents –institutional portfolio window dressing, tax selling, profit-taking. It is also the holiday season with a lot of distractions. If you have targeted certain stocks selling a attractive prices, so have other investors. Don’t let them beat you to the punch. While you are shopping or partying, someone could be running your targeted stocks up.
WHAT TO EXPECT TODAY:
Expect a drop to DJIA 16,062 (S&P 500: 1,802) followed by a rebound. Yesterday’s action had to rattle a lot of Wall Street computers which were not programmed to hit a curve ball.
DJIA: 16,167
S&P 500: 1,810
Nasdaq Comp.4,070
Russell 2000: 1,133
BEST SIX MONTHS TO OWN STOCKS:
Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.
The Almanac’s “Best Six” goes back to 1950. The six months is a snapshot between November and May. Many major market advances often start before November, but the point made here is the period between fall and May is where the action is.
IS THIS GOING TO BE A “BEST SIX MONTHS ?
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*
With a 3.6% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).
THE DANGER: over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.
TIMING – OPPORTUNITY STOCKS New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns. All on the drawing board.
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: $550.77) Positive. (ALERT)
As forecast, AAPL dipped below $545 where it became attractive enough to attract buyers who closed it at $550. Support is $546, resistance is $555 – $558
Facebook (FB:$55.57) Positive
Still on a tear. Support $55.
IBM (IBM: $178.70) Negative (ALERT !)
Rebounded sharply off October’s 52-week low which could comprise a double bottom. Successfully tested October and December low of $172.73 to validate a double bottom and head off a plunge into the 160s. Resistance now $180 – $181. Support $180 – $182
Pulte Homes (PHM: $18.41) Positive
Minor Changes: The housing industry must now demonstrate it can gain traction. That may be in the works with the big jump in October’s New Home Sales. Stock has held four times in this $17.80 area and got liftoff by Fed Chief Bernanke’s comments yesterday assuring the Street the Fed may be tapering, but it will continue its low interest rate policy. Prior to this, the housing industry was a fan of “no” taper. While interest rates spiked yesterday on the FOMC announcement, they slipped back down.
First Solar (FSLR:$55.42) Neutral
Stock needs a credible institutional research report to assure investors FSLR’s fundamentals are not following China’s track. Spikes of buying volume suggests FSLR may be attracting buyers. Tuesday’s bump up improved its pattern. Yesterday’s failure to drop and strong close, could be all FSLR needs to cross $58. Support $54.80. Resistance starts at $56.25.
Nike (NKE:$78.55) Positive
Was trading upbeat before the big afternoon rally, then blew through sellers and across $78. Support $77.80 Resistance $79.50.
Hewlett-Packard (HPQ: $27.51) Positive.
After breaking out of a 9-day consolidation on increased volume Tuesday, HPQ got hammered by a seller at the open but rebounded with the big afternoon rally. Support moves up to $27.30. Resistance $ 27.75. I am not convinced it can cross $28 this time, may need a few days to consolidate.
Polaris Inds. (PII:139.91) Positive
Improving pattern carried PII across $138 yesterday and a smidge short of a 52-week high ($140.43).Support is $138.30.
Amazon (AMZN: $395.96) Positive
Was rescued by the FOMC taper rally yesterday breaking up through key resistance at $392. Support is $390. $400 possible in good market.
Pandora Media (P:27.01) Positive.
P is holding the line at $26.40. Its close at $27 sets up a move across $28 – $29.
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
THE ECONOMY:
This may be the most significant week for reports on the economy and Fed action of the year.
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.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:
Empire State Mfg. Svy. (8:30) flat
Productivity/Costs (8:30) year over year for Q3 was +0.3 pct. vs. +0.2 pct. Q2
PMI Mfg. Ix..(8:58) Index for Dec. 54.4 vs. 54.3 Nov.
Industrial Production (9:15)Nov up1.1pct. vs. +0.1 pct. Oct.
TUESDAY:
FOMC Meeting Begins
ICSC Goldman major chain store sales: same store sales jumped 4.8 pct in the Dec. 14 week
Consumer Price Index (8:30): Nov. was flat vs. a drop of 0.1 pct. in Oct.
Housing Mkt. Ix. (10:00) Rose 4 points to58 ending a three month slump.
WEDNESDAY:
Housing Starts (8:30) Nov. Starts +22.7% vs gain of 6.7% Oct. Permits down3.1% vs. gain of 6.7% Oct.
FOMC announcement on TAPER (2:00 p.m.)
FOMC forecasts (2:00) p.m.)
Bernanke press conference (2:30)
THURSDAY:
Jobless Claims (8:30) Proj: For 12/14 week 337,000 vs. 368,000 for prior week which increased 68,000.. Claims are back up to level before shutdown. Four week avg. is only up 6,000 to 328,750
Philly Fed Svy. (10:00) Proj: December index is 10.0
Existing Home Sales (10:00) Proj: Nov. 5.02 million-unit rate vs. 5.12 million-unit rate Oct.
Leading Indicators (10:00) Proj:Nov. 0.7 pct. vs. +0.2 pct Oct.
FRIDAY:
Quadruple Witching Friday
GDP (8:30) Proj: Third estimate for Q3 is +3.6 pct. may be inflated by inventory growth estimates
Kansas City Fed. Mfg. Ix. (11:00) Proj: Dec. index is 8 vs. 7 in Nov.
RECENT POSTS – 2013
Dec 5 DJIA 15,889 “December’s Two Dilemmas – Watch Your Back”
Dec 6 DJIA 15,821 “No Fed Taper=December Rally – Correction Q1 ?
Dec 9 DJIA 16,020 “Investor Angst Intensifies”
Dec 10 DJIA 16,025 “ Two Big Dates Loom – What to Watch”
Dec 11 DJIA 15,973 “Year End Rally ?
Dec 12 DJIA 15,843 “Trading Opportunities Imminent – First a BUY – Then a
SELL”
Dec 13 DJIA15,739 “Best Six Months Ahead ? Not Without an Ugly Correction in
the Interim”
Dec 16 DJIA January 30 Taper ? If So, Fed Needs to Schedule a Press
Conference – a Tip off”
Dec 17 DJIA 15,755 Fed to Taper January 30 ? It Should, Here’s Why
Dec 19 DJIA
*Stock Trader’s Almanac;Get it ! This is the most comprehensive compendium of investing savvy between two covers I have ever encountered in my 47 years of writing about the market. Got my first in 1968. There you have it ! I’m an old duff, but I have programmed my computer (brain) with smarts gained from writing about the market in an unbelievably challenging stretch of market activity. I endorse the Almanac – It’s loaded with references, stats, valuable studies, and insight.
George Brooks
“Investor’s first read – an edge before the open”
……………………………………………..
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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