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Head & Shoulders Top Off the Table

Investor’s first read      - Brooksie’s edge before the openFriday, April 27, 2012        9:10 a.m. ETDJIA: 13,204.62S&P 500:   1399.98Nasdaq Comp.: 3050.61Russell 2000:

Investor’s first read      – Brooksie’s edge before the open

Friday, April 27, 2012        9:10 a.m. ET

DJIA: 13,204.62

S&P 500:   1399.98

Nasdaq Comp.: 3050.61

Russell 2000: 818.33

Yesterday I said the DJIA needed to rise above 13,250 and S&P 500 above1,410 to erase a “topping” pattern  in the market underway  since mid-March.  I referred to that pattern as a Head & Shoulders” top with the right shoulder currently in the process of forming.

I also reminded readers that we are closing in on the end of the “Best Six Months” to own stocks (November 1 to May 1”* and the two combined could signal a sharp correction (not bear market). Both market averages exceeded those levels by a smidge yesterday on an intraday basis.  Barring unexpected negative news of major significance, I think the Head & Shoulders top is only remotely possible now, though the end of the Best Six Months is still on the table.

There have been exceptions to the Best Six Months pattern  and times when it was marginally helpful.  JUST ACKNOWLEDGE that the tendency is for November through April to outperform May through October and be flexible but cautious.

We are smack in the middle of earnings season, a truly treacherous period when a company can “beat” estimates and still get hammered, God forbid if they fall short by a cent or two.

TODAY: The DJIA is up close to 400 points in two days, but the volume was unimpressive, suggesting we aren’t witnessing a stampede to buy stocks.  We are seeing  a stubborn BULL, which indicates institutions are willing to buy on dips.

Unless these money managers believe the market is going to plunge, they have nowhere else to put money.

The first round of estimates for Q1’s GDP growth fell short of projections.  The economy grew at an annual rate of 2,2% vs. projections for a growth of 2.5%.  The stock-index futures barely budged prior to the open, so look for  a trading range today  between DJIA 13,135 and 13,265 (S&P 500: 1,392 and 1,418).


Again, the flow of economic reports will be important this week because the Street is concerned that the economy is slowing.


Case Shiller Home Price Ix (9:00) – a 20-city house price index indicated prices dropped at a slower rate in February, suggesting the market was stabilizing.  Home prices declined 3.5%  vs. a year ago.

New Home Sales (10 a.m.) At an annual rate of 328,000, March sales of new homes exceeded projections but declined 7.1% from a February’s upward revision of 353,000. A Bloomberg survey of 78 economists forecast an annual  rate of 319,000.

Consumer Confidence (10 a.m.) –  was unchanged in April

following a drop  to 70.2 in March from 71.6 in February.

FHFA House Price Ix (10 a.m.) – unchanged in January after a 0.1% increase in December.


Durable Goods (8:30) – March orders were down 4.1% . The numbers were adversely impacted by declines in the aircraft industry, which  somewhat masked gains in other sectors of the economy. FOMC Meeting Announcement (12:30) –  is expected to leave policy rates unchanged, but the Street will be focused on comments by Fed officials after the meeting for any clues about a change in policy going forward.


Jobless Claims (8:30) – declined 1,000 for the week ended April 21 vs, a drop of 2,000  in the  prior week. The four-week average is now 381,750.

Pending Home Sales (10 a.m.) – Jumped 4.1% in March after a 0.4% rise in February and a 2.0% rise in January. Economists were looking for a gain of 1%, the range running between a minus 3.7% and gain of 4%


GDP (8:30) – The annual rate of growth of  Q’1s GDP at plus 2.2% came in short of  the 2.5% projected.  It compares with Q4 growth of 3,0% and   Q3’s  1.8%.

Employment Cost Ix (8:30) – a measure of the total employee compensation costs, including wages, salaries and benefits. It rose 0.4% in Q4 vs, a rise of 0.3% in Q3.

Consumer Sentiment (9:55) – The index slid to 75.7 in mid-April from 76.2 in March

Apr 26   DJIA 13,090   “Market at a Crossroad”

George  Brooks

*Stock Trader’s Almanac.  You should not be without this statistical  gem and reservoir of investing savvy. Got my first issue in 1968 and every one since.



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.

Copper, base metals, and industrial commodities face bearish technical trends, but the fundamentals remain bullish.