While there was no shortage of crises along the way and there were nasty corrections in 2010 and 2011, the bull pressed on, and there is evidence the individual investor has seen enough and is returning from the sidelines.
In just the first three weeks in January, equity mutual funds attracted $29.9 billion, more than any full month since 2006 when they drew in $33.1 billion. A decision by Congress to postpone sequestration until March 1 was seen as a green light to invest. European economies are showing signs of stability, as is Chinese manufacturing.
The record was hit in February 2000 just ahead of the collapse in technology stocks when $56.3 billion poured into equity mutual funds.*
Unfortunately, $28.1 Billion was also invested in bond funds in the first three weeks of January. I don’t have a breakdown of how much of that went into long-term bond funds, but rising interest rates are going to take a toll on values.
Increasing participation by the individual investor in the stock market has been one of the signs of an aging bull market, the logic being that the individual needs so much “convincing” that a bull market is for real, that he/she doesn’t make the to buy plunge until most of it has run its course.
We are starting to see an urgency to buy stocks, and it is not just the individual doing it. Institutions and hedge funds MUST perform or lose clients and the only place to do it is in stocks.
This bull market has room to run, and I don’t think it will finally be over until speculation runs rampant with low-priced stocks soaring.
Investor’s first read – an edge before the open
S&P 500: 1,513.17
Nasdaq Comp.: 3,179.09
Russell 2000: 911.20
Monday, February 4, 2013 (9:16 a.m.)
After Friday’s surge and the 5% rise in January, buying appears to be a “no-miss” situation. NOT SO !
Strong January’s in post-election years have consistently been followed by a correction of varying magnitudes in February/March in 1961,1965,1969,1985,1989, 1997, 2001, 2005, and 2009.
The good news is that with the exception of 1969,2001 and 2005, those corrections were followed by dramatic moves up in the market.
What’s my point ?
Don’t panic !
Trading in Stock-index futures indicate a drop to DJIA 13,915 (S&P 500: 1,503) in early trading. That should be followed by a bounce to DJIA 13,975 (S&P 500: 1,509).
JANUARY BAROMETER: Signals a good year.
As January goes, so goes the market for the year, according to the January Barometer (JB), developed by Yale Hirsch, Stock Trader’s Almanac in 1972. The JB boasts an 88,7% accuracy rate over 62 years with some of its misses explained by unpredictable events, war, etc,
The S&P 500 posted a 5.0% gain in January, which gets it into the top 12 going back to 1972. The poorest year’s performance for the market with a 5% January gain is 16.5% (1951). The best is + 45% (1954). In most cases, the year still gained even after subtracting January’s gain.
Ranked by January performance:
Rank 1 1987 Jan. Chg. 13.2% Yr. Chg. 2.0%*
2 1975 Jan. Chg. 12.3% Yr. Chg. 31.5%
3 1976 Jan. Chg. 11.8 % Yr. Chg. 19.1%
4 1967 Jan. Chg. 7.8% Yr. Chg. 20.1%
5 1985 Jan. Chg. 7.4% Yr. Chg. 26.3%
6 1989 Jan. Chg. 7.1% Yr. Chg. 27.3%
7 1961 Jan. Chg. 6.3% Yr. Chg. 23.1%
8 1997 Jan. Chg. 6.1% Yr. Chg. 31.0%
9 1951 Jan. Chg. 6.1% Yr. Chg. 16.5%
10 1980 Jan. Chg. 5.8% Yr. Chg. 25.8%
11 1954 Jan. Chg 5.1% Yr. Chg. 45.0%
12 1063 Jan. Chg. 4.9% Yr. Chg. 18.9%
*The October CRASH adversely impact the year as a whole.
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos.
As the tensions from European sovereign debt woes abate, money will flow out of safe havens and into stocks where a better return is hoped for.
APPLE (AAPL: $453.62)
Sellers are still there as AAPL buyers found out Friday when they got stopped in their tracks in early trading at $459. The stock got hammered steadily down to $448, before rebounding to $456 before selling off in late trading. Conclusion: We are seeing a better balance between buying and selling, though the sellers are still putting a lid on rally attempts, and at lower and lower levels.
TODAY: A drop below $444 would signal a test of its $435 low and that could get ugly. Should this turning pattern fail, I see a drop to $398.
AAPL is down 36% from its September high as a result of a lot of selling. At some point, AAPL will find a comfort level where buyers take all the remaining stock sellers have to dump, and that is where the bloodletting stops. Just like every failed attempt to rally indicates formidable overhead supply, so too will failed attempts to sell off to new lows indicate buyers see this as a bargain.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $29.73) While buyers (or shorts covering positions) were able to erase most of last Thursday’s loss, sellers showed up again Friday to raise some doubts about a near-term direction of FB’s stock. Trading this week is critical. There is now resistance at $30.63, and on up to $32. FB is at risk of a drop below $28.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help out targeting a bottom as with FB.
This will be a light week for economic reports. A drop in defense spending and slower inventory growth was responsible for Q4’s paltry annual growth rate of 0.1%, following a Q3 annual rate of 3.1%.
But the Street is heartened by favorable economic data on employment, personal income, consumer sentiment, auto sales construction spending, durable goods manufacturing, and housing.
I am going to list the economic reports below but will not include the numbers from the last report, since those numbers are often revised significantly and therefore are potentially misleading.
I strongly urge you to access the website: www.mam.econoday.com for detailed reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports. The site does a great job graphically illustrating key indicators.
Factory Orders (10:00)
ISM Non-Mfg Ix. (10:00)
Jobless Claims (8:30)
Productivity and Costs (*;30)
Consumer Credit (3:00)
International Trade (8:30)
Wholesale Trade (10:00)
*Investment Company Institute data reported by Bloomberg
“Investor’s first read – an edge before the open”
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