Be on the alert for the impact of selling in 2013’s big winners in January 2014 by investors who want to defer capital gains into the new year.
Just how much of an impact selling from this source could have is hard to calculate, but the S&P 500 is ahead 29% with three days left in the year.
The S&P is up 12% since mid-November with only a moderate, disjointed correction in the interim (Nov. 29 – Dec. 12).
For the present, the Street is not worried about the stock market, taper, the economy, Europe, China, Congress, or the Mid-East, which is good reason to be cautious about investing too aggressively, especially in stocks that have had a huge run.
This bull has further to go with speculation running wild as the individual investor finally concedes it is safe to return to the market en mass.
What an investor doesn’t want is to buy a stock right before a sharp correction, then spend months recouping his loss - if he is lucky.
Corrections are part of bull markets. The key is to avoid getting mauled by one, but also being in a position to take advantage of lower prices.
Some of 2014’s biggest winners will be 2013’s duds. New “winners” will emerge, and there are stocks that had a good run this year, but have further to go.
One strategy for investors to employ under these conditions would be to buy a partial position in a stock they want to own, but feel it could be bought at a lower price after a market correction. If it goes higher, they are still making money. If it goes lower, they can average their cost.
Likewise, if an investor feels a position is vulnerable but believes it could still go higher, he can sell off part of the position. If it goes higher, sell the rest. If it goes lower, the higher sale averages out the shares sold at a lower price.
As simplistic as this strategy is, it is easy to overlook under pressure.
Investor’s first read– a daily edge before the open
S&P 500: 1,846
Russell 2000: 1,162
Friday, Dec. 27, 2013 9:13
Janet Yellen’s Senate confirmation vote as Chair of the Federal Reserve has been delayed in face of Republican opposition until January 6. This may be just another chess play or the beginning of a new problem.
Now that the first taper has been announced, . the Fed is expected to wrap up QE in measured steps at a $10 billion clip over the next seven sessions, but would alter its withdrawal if the economy falters.
While taper is a change in Fed policy away from stimulation, the Fed insists it is not tightening, since it plans to hold interest rates down throughout 2014.
I AM GOING TO REPEAT THE FOLLOWING TO MAINTAIN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.
Best Six Months to own stocks:
Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.
The Almanac’s “Best Six” goes back to 1950. The six months is a snapshot between November and May. Many major market advances often start before November, but the point made here is the period between fall and May is where the action is.
Is this going to be another “BEST six months to own stocks ?
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*
With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).
THE DANGER: over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.
TIMING – OPPORTUNITY STOCKS New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns. All on the drawing board.
The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but as 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. Technical analysis is based on one’s interpretation of the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly.
Apple (AAPL: $563.90) Positive.
Low volume Tuesday and yesterday enabled profit- takers to shave a few points off AAPL’s stock after Monday’s $21 surge. Support is $563.40.
Could break out again or back and fill for a few days. Acts well.
Facebook (FB:57.73) Positive
Had buyers at $57 support. Break above $58.32 paves way for low 60s. Appears to be upstaged by Twitter (TWTR) which is up 83% in less than 4 weeks. Support is $57.
IBM (IBM: $185.35) Positive
Its double bottom at $172 - $173 is set. Broke through resistance at $184, but will have a tough time getting past $186 where it ran into a wall in October and November. Support is $182.
Pulte Homes (PHM: $19.98) Positive
The housing industry must now demonstrate it can gain traction. Support is now $19.50. Stock has had a pattern of sharp price jumps followed by a consolidation and pull back. Ran into selling above $20. Needs a breather after its 6-day run from $17.75.
First Solar (FSLR:$55.68) Neutral turning positive
Stock needs a credible institutional research report to assure investors FSLR’s fundamentals are not following China’s track. Still reflecting uncertainty about its fundamental outlook. Needs a high volume move across $58
Nike (NKE:$78.19) Positive
Got some badly needed buying yesterday, though volume could have been greater.
Move across $79 would improve pattern and pave the way for an attack of 52-week high of $80.28.
Hewlett-Packard (HPQ:$28.31) Positive.
Attempt to breakout and run failed, but pattern is positive. Support is $28.25.
Another rally followed by a tight consolidation indicates it wants to move across Polaris Inds. (PII:144.23) Positive
Buyers persistent, stock can go higher. Support $144.
Amazon (AMZN: $404.39) Positive
Rebounded off support at $396 and closed at the high for the day. Looks higher.
Pandora Media (P:$28.70) Positive.
No chang: Needs several days of heavy upside volume to push it into the low 30s. Big difference of opinion on the Street on this one.
NEW ! NEW ! NEW ! - Technical analysis ALERT list
The following is a “Technical” alert list, stocks that have indicated an improved technical pattern. I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their technical pattern is improving. Normal intraday fluctuations can offer a lower price than that listed here. Positive patterns can be interrupted by corrections.
Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop cell in line with your tolerance for risk
Align Technologies (ALGN:57.77 ) Listed here (12/23) at $57.03
Gentex (GNTX: $32.96) Listed here (12/23) at $32.64
Netease (NTES: $76.18) Listed here (12/23) at $74.51
Spirit Airlines (SAVE: $46.03) Listed here (12/23) at $46.06)
Valeant Pharm (VRX: $113.76)Listed here (12/23) at $112
Dycom (DY:27.19 ) Listed here (12/23)12/23) at $28.05
Cognex (CGNX: $38.10)Listed here (12/23) at $36.09)
Salex Pharm. (SLXP: $89.30) Listed here (12/23) at $87.61
Natus Medical (BABY:$22.48) Listed here (12/24) at $22.80
Sierra Wireless (SWIR:$23.68) Listed (12/24) at $22.33
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”
TUESDAY: Market closes 1 p.m.
RECENT POSTS - 2013
Dec 5 DJIA 15,889 “December’s Two Dilemmas – Watch Your Back”
Dec 6 DJIA 15,821 “No Fed Taper=December Rally – Correction Q1 ?
Dec 9 DJIA 16,020 “Investor Angst Intensifies”
Dec 10 DJIA 16,025 “ Two Big Dates Loom – What to Watch”
Dec 11 DJIA 15,973 “Year End Rally ?
Dec 12 DJIA 15,843 “Trading Opportunities Imminent – First a BUY – Then a
Dec 13 DJIA15,739 “Best Six Months Ahead ? Not Without an Ugly Correction in
Dec 16 DJIA January 30 Taper ? If So, Fed Needs to Schedule a Press
Conference – a Tip off”
Dec 17 DJIA 15,755 Fed to Taper January 30 ? It Should, Here’s Why
Dec 19 DJIA 15,875 Taper Today=Sell Off Followed by a rally – No
No Taper=Rally Followed by a sell off”
Dec 23, DJIA 16,221 New Feature : “Technical “Alert” List.”
Dec 24 DJIA 16,294 Buyer Panic ? Or Seller Ambush ?
Dec 26 DJIA 16,357 Year End Opportunities
*Stock Trader’s Almanac;Get it ! This is the most comprehensive compendium of investing savvy between two covers I have ever encountered in my 47 years of writing about the market. Got my first in 1968. There you have it ! I’m an old duff, but I have programmed my computer (brain) with smarts gained from writing about the market in an unbelievably challenging stretch of market activity. I endorse the Almanac – It’s loaded with references, stats, valuable studies, and insight.
“Investor’s first read – an edge before the open”
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.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer