The short answer and long answer are the same.
One can justify overvaluation/undervaluation using any number of yardsticks, but it all boils down to CONFIDENCE, or lack thereof, and that can’t be quantified.
People try. We read of comparisons to past bull markets, of momentum indicators that are losing momentum, price/earnings comparisons, historic “norms,” anecdotal accounts, measures of extreme speculation, excessive margin debt, etc.
I think the market has room to run a lot higher, but not in a straight line.
The Bulls will argue that the market had every reason to fall apart a week ago, but didn’t.
The bears will remind us this bull market is in its fifth year with the S&P 500 up 162%, well beyond the norm for bull markets.
I don’t see excessive speculation in stocks, and I clearly don’t hear stories about big bucks being made overnight in unknown stocks. In fact, there is little evidence the public is ready to come off the sidelines into anything more speculative than a balanced mutual fund.
At the end of the day, it is a judgment call. The best answer I can offer is, each person must assess their tolerance for risk and invest accordingly. For some, that dictates a high cash reserve; others invest, but sit close to the exit; and others let it rip with close stop sells. Your call.
This bull market has been incredible. It has climbed an unprecedented wall of worry. Our economy has yet to gain major traction, and the same can be said about the global economy. But that can happen.
The risk is doubting it can happen.
Resistance is DJIA: 15,495 (S&P 500: 1,756).
Investor’s first read– an edge before the open
DJIA: 15,392
S&P 500: 1,744
Nasdaq Comp.: 3,920
Russell 2000: 1,112
Tuesday, Oct. 22, 2013 (8:56 a.m.)
STOCKS OF GENERAL INTEREST:
The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but 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.
Apple (AAPL: $521.36) Positive.
Big jump yesterday was in anticipation of its intro of its newest iPad today. Breaking resistance at $524, AAPL headed for $529. Earnings and all the whoopla that goes with it come on Oct 28. Has a shot at $538 – $544 if market sizzles.
Facebook (FB: $53.85) Positive
Took a day off yesterday, but still has a chance at a move across $55. Support rises to $53.65
IBM (IBM: $) No change from yesterday’s comments, “Got crushed by earnings report. IBM now negative Obviously the report came as a surprise to the Street, the stock had risen five out of the last six days before the report. IBM is down from a March high of $215. Thursday’s “flush” should have cleared the air. Support is now $173.35 resistance $175. While its technical pattern has abruptly turned negative, fundamentalists will be looking closely at a level that represents value. This kind of “gap” pattern is typical. Rather than trade lower and lower in response to bad news, stocks simply plunge (gap) to a level that discounts the change in fundamentals then bounces along sideways until all sellers are flushed out and there is reason for bargain hunters to step in. I may replace IBM with another stock unless I see the possibility of it slipping down to the low 160s where it would be very attractive for institutional investors with a longer term outlook. Odds don’t favor that, but a big rebound is unlikely near-term. TODAY: Chart pattern deteriorating as it tests the year’s low of $52.57. Needs big buyer to stop the bleeding, or IBM breaks $170.
Pulte Homes (PHM: $16.38) Positive
Thursday’s break out from its 19-day “down channel” on increased volume set the stage for a move to $17 which it nearly hit ($16.95) Friday before slipping back on a light-volume day. Got whacked at the open yesterday, but recovered steadily. Support at $16.50 was broken, but pattern is still positive. New support is 15,95. Earnings come on Oct. 24.
First Solar (FSLR:$53.87) Positive
Yesterday’s surge was triggered by a JP Morgan recommendation, and possibly by panicky short covering. Stock can hit May high of $59, and could go higher if shorts are squeezed to the “ouch” point. FSLR has had a big run since its Sept. low of $35.59, and I may replace it with another stock.
Target (TGT: $64.70) Now a weak positive
No change here. Broke out from a sloppy turning pattern with potential for $67, but will encounter selling along the way. Support is $64.50
Hewlett-Packard (HPQ: $23.55) Positive.
Broke out of a tight “pennant” formation last Wednesday, with nice follow through Thursday and Friday. Monday was a day of rest. Move across $23.74 paves way for a rise to $24.65. Has the potential for a move to $25 – $26.
Support is $23.25
EBAY (EBAY: $51.94) Neutral
Thursday, EBAY’s stock got hammered after its disappointing earnings and guidance for Q4 hammered the stock Thursday. Management since backtracked a bit, noting their pessimism was overdone. Failed to beat Friday’s high of $52.68 with a close close to its low for the day. Looks like it tests $51 today. Must move over $52.70 to reverse negative press from earnings guidance. This was the fifth time down from the $56 – $57 area this year, each of the preceding four times it rebounded sharply.
Amazon (AMZN: $326.44) Positive
Blew out of a tight consolidation pattern Friday, and took a breather yesterday. Support is $324.
I do not own, nor am I short: AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.
ECONOMIC REPORTS:
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
MONDAY:
Fed’ Evans speaks (8J
Chicago Fed Activity Ix.(8:30) Delayed due to shutdown
Existing Home Sales (10:00) PROJ.: Sept. 5.30 millioon rate vs. 5.48 million rate Aug.
TUESDAY:
Employment Situation (8:30) PROJ.: Sept 185,000 vs. 169,000 Aug. Was delayed due to shutdown.
Richmond Fed Mfg. Ix.(10:00) Delayed due to shutdown
WEDNESDAY:
Import/Export Prices (8:30) PROJ.: Import +0.2 pct, Export-0.1 pct.
FHFA House Prices (9:00) PROJ.: July y/y +8.8 pct.
THURSDAY:
Jobless Claims (8:30) PROJ.: For 10/19 335,000
PMI Mfg. Ix.(8:58)PROJ.: Oct. index was 52.7
JOLTS(10:00) PROJ.: Job Openings Labor Turnover Aug. 3.725 mil vs 3.689 July
New Home Sales(10:00) PROJ.: Sept. 420,000-unit annual rate
Kansas City Fed. Mfg. Ix.(11:00) PROJ.”: Delayed
FRIDAY:
Durable Goods (8:30) PROJ.: Sept.:+2.5 pct, ex-trans. +0.5 pct
Consumer Sentiment (9:55) Oct. Index 74.8 vs. 75.2 mid-month Oct.
RECENT POSTS – 2013
Oct 7 DJIA 14, 936 “DJIA 12,760 if Oct. 17 Deadline Missed”
Oct 8 DJIA 14,936 “Don’t Chase This Week’s Rally
Oct 9 DJIA 14,776 “Don’t Buy A Debt Ceiling Solution Rally”
Oct 10 DJIA 14,802 “A Very, Very Dangerous Rally”
Oct 11 DJIA 15,126 “News Whipsaw Can Roil Stock Prices in Coming Days”
Oct 14 DJIA 15,237 “Fear of Default Returns – Trader Alert”
Oct 15 DJIA 15,301 “What If We Default ? What If We Don’t ?
Oct 16 DJIA 15,168 “Market Saying “Deal” – A High Risk Bet ?”
Oct 17 DJIA 15,373 “How Much of the “Deal” has the Market Discounted” ?
Oct 18 DJIA 15,371 “No More Wall of Worry for Bull Market to Climb ?”
Oct 21 DJIA 15,399 “ Analysis Projects High-Low Range for DJIA”
George Brooks
“Investor’s first read – an edge before the open”
NOTE: STOCK TRADERS ALMANAC: The new annual Stock Trader’s Almanac is off the press. This is a “must,” always has been, if you are a serious investor, or intend to be a serious investor. Visit stocktradersalmanac.com for details
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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. Brooks may buy or sell stocks referred to herein.
