Corrections of 3% to 5% are not uncommon in bull markets. Whether one becomes a bigger correction depends on what news hits the market when it is about to recover from one of these corrections. We are getting close to the point where the market will try to rebound. If corporate earnings in general and/or the economic numbers disappoint, we will go lower.
The S&P is down 3.5%., the DJIA down 2.4% from their intraday peak on April 11. A 5% correction would take the DJIA down to 14,140 (S&P 500: 1,517), or so..
The rally that started in early January was buoyed by the belief earnings and the economy would continue to notch up unscathed, Europe would be on hold, and sequester would come and go with selected but minimal damage.
The financial press will soon headline an old bromide, “Sell in May and Go Away.” I’ll buy the “sell’ but not the “go away” part.
It is important to note that a regularly occurring seasonal pattern, the “Best Six Months for owning stocks (November 1 – May.1),* is nearing an end. While the underperforming six months, May 1 to November 1, is looming, it doesn’t necessarily support the bromide, “Sell in May and go away.”
Yes, odds favor a correction in May, and it may have started early, But the underperforming six months does not mean money cannot be made in the interim. Great buying opportunities were presented in 2010, 2011 and 2012 following sharp corrections in May.
Odds strongly indicate a correction will follow the best six months period this year, but look to it as a potential buying opportunity a few months out.
TODAY:
The U.S. economy is hitting some headwinds and that is beginning to impact stock prices, along with an expected decline in Q1 earnings vs. a year ago, first since 2009.
Economies in New York, and Philly are slowing, as are retail sales and even the nation’s leading economic indicators.
Perhaps, this is merely a hiccup, but the news comes on top of a stock market that has risen sharply without correction for five months. Why not take some profits ?
Nevertheless, institutions will look at this pullback as an opportunity to buy. I think that is a premature idea.
I think the DJIA will be hard-pressed to top 14,609 (S&P 500: 1,548) today. Odds favor, the DJIA will drop to 14,419 (S&P 500: 1,528) before bouncing.
Investor’s first read – an edge before the open
DJIA: 14,537.14
S&P 500: 1,541.61
Nasdaq Comp.: 3,166.36
Russell 2000: 901.51
Friday, April 19, 2013 (9:05a. 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: $392.05)
AAPL’s plunge below $400 had to turn some heads this week. This former darling of the Street is down 44% since its September, 705 high and volume is picking up, suggesting buyers are out there with a bushel basket catching stock that frustrated investors are dumping. It has long passed the “ouch” point en route to a higher level of pain when the last loyal shareholder bails out.
I see that point at $367 on a one-day reversal. Earnings are expected to be announced next Tuesday, so that could be the “big flush” day unless management surprises the Street. So far, they haven’t demonstrated they know how to do that, worse yet care. A year ago, AAAPL was the most popular company on earth, now it is contending to be the least. Wake up, management ! This isn’t just about you, it’s about believers. Once you lose them, they are gone. Got problems ? Talk about them, talk about solutions. Silence breeds doubt, fear, suspicion.
I am not long or short AAPL.
FACEBOOK (FB – $25.69)
Another plunge in the overall market took FB down to my support at $25.40. Under normal conditions, that level should hold.
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.
*Stock Trader’s Almanac: Just one of an endless list of seasonalities and market patterns published – an invaluable guide for active and casual investors – loaded !
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
……………………………………………..
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.
