Look for a big open today following a good Employment Situation report (+165,000 new hires January).
This strength is more than welcome , since the market was showing signs of fatigue in recent days. What the bulls cannot afford today is for a rally failure, for the market to give back all that it gained in early trading. That would suggest a correction next week.
The bulls have a decided edge, but healthy markets pause and pull back as they rise. This is a grand bull market and will advance into a highly speculative phase as it matures. The individual investor is just now starting to enter the market.
JANUARY BAROMETER:
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.
Investor’s first read – an edge before the open
DJIA: 13,860.58
S&P 500: 1,498.11
Nasdaq Comp.: 3,142.13
Russell 2000: 902.09
Friday, February 1, 2013 (9: 14 a.m.)
INTERNATIONAL – DAVOS:
“Optimism but with a sober tone,” is how Bank of America (BAC) CEO Brian T. Moynihan characterized the World Economic Forum in Davos, Switzerland last week. The mood contrasted drastically from 2008 prior to the global meltdown when John Thain, CEO of NYSE Group, Inc. referred to the financial markets and world economies as, “all actually in quite good shape.”
After this year’s forum, Ray Dalio, Bridgewater Associates LP, world’s largest hedge fund managing $130 billion said low interest rates will trigger a shift of money into riskier investments making 2013 a “game changer” for the economy.
BOND MARKET:
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. The Vanguard Long-Term Bond ETF (BLV) is down 5.6% since mid-November. For the same period, the PowerShares, 1-30 Laddered Treasury Portfolio (PLW) yielding 2.2%, is down 4.4%, and he SPDR Barclays Long-Term Treasury ETF (TLO) yielding 2.6%, is down 6.2%. All three would be down more if I used their July highs. The short-term bonds are obviously not a problem.
APPLE (AAPL: $455.49)
While AAPL’s price action in the last five days has been impressive, the stock needs bigger volume to complete a turning pattern. Real bargains simply don’t sit around waiting for everyone, savvy and un-savvy to get on-board.
Pre-market trading indicates a positive open. That needs to gain traction to move AAPL up across $465 and start filling the price gap extending all the way up to $500. A move across $465 does not ensure the bleeding in this one is over, but it improves the pattern. What is needed is BIG volume – 40 to 50 million shares.
Two weeks ago, I targeted $438 as a likely support level should $468 fail to hold after a break down through $500. It hit $438 Friday, bounced briefly then closed there. Every day this week, AAPL rallied at the open, but sold off in late trading. Trading each day was lighter, though picked up at the close yesterday.
Sellers are still there waiting to feed stock out on any show of strength. I believe this selling comes from analysts who turned bearish more recently after AAPL had already plunged 30%.
Near-term support is $452. 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.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $30.98): FB got hammered at the open yesterday following its earnings report after the close Wednesday, however it wasted no time rebounding to close off fractionally. Undoubtedly, some of that snapback was short covering. But buyers prevailed. Resistance is $31.48. As expected, it slipped briefly below $29 before recovering its entire loss for the day. Support is now $30.18.
Earnings reported after the close Wednesday showed a 79% drop in net income as a result of an 82% rise in operating expenses designed to increase FB’s share of the U.S. mobile-ad market which google (GOOG) presently dominates.
In pre-market trading, FB has dropped to $29.50, which looks reasonable in light of its earnings report. It may slip under $29 briefly where it should stabilize.
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.
ECONOMY:
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.
The ADP Employment report (Wed. 8:15) and Employment Situation report (Fri. 8::30) are key reports this week.
FRIDAY:
Employment Situation (8:30)
Consumer Sentiment (9:55)
ISM Mfg Ix. (10:00)
Construction Spending (10:00)
*Davos coverage – Bloomberg
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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.
