This week may be the most important of the year. It includes a host of key economic reports (see below), as well as the Fed’s decision on taper. Oh, and Friday features the potentially disruptive Quadruple Witching, when stock index futures, options, stock options and single stock futures expire simultaneously (ugh).
Will Fed announce its taper at the January meeting?
If they are going to do so, they will have to schedule a press conference to accompany it. So far, none is scheduled. it and that would be a tip off if they did.
It would give the Fed another month of data and it would coincide with Fed Chief Bernanke’s last day. Vice Chair, Janet Yellen, is expected to gain Senate confirmation later this week.
One of my most reliable sources reminds me that a March taper would disrupt interest rates just as the home building/real estate season kicks off – bad timing.
TECHNICAL ANALYSIS OF EACH OF 30 Dow Industrials.
At key junctures, I technically analyze each of the 30 Dow Jones industrials, seeking three levels, a reasonable risk, a more pronounced risk level and a reasonable upside potential, all three are short-to-intermediate-term. I tally the estimates for each and divide by the Dow’s “divisor” to arrive at what the DJIA would be under each of the three scenarios. It worked wonders picking the bear market bottom on early March 2009 and served well on a number of occasions in the interim. A reasonable downside here would be 15,277, a more pronounced downside would be 15,048 and a reasonable upside would be 15,974.
Investor’s first read– a daily edge before the open
S&P 500: 1,775
Russell 2000: 1,107
Monday, Dec. 16, 2013 9:20 a.m.
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 A “BEST SIX MONTHS?
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*
With a 3.6% 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.
The rally at the open can extend to 15,878 S&P 500: 1,790) before flattening out. Some of this is bargain hunting after last week’s slide. Some may be hedging against a decision not to taper on Wednesday after a week where the Street appeared to be discounting a Fed decision to taper this week.
Short-term, I would not chase stocks that are running if the Fed elects NOT to taper Wednesday. Depending on the stocks technical pattern, I would consider selling into the announcement. Traders should look to BUY if the market tanks 240 to 350 points if the Fed decides to begin taper Wednesday.
YEAR END UGLINESS:
We have entered the ugly part of year-end trading – accelerated profit-taking, where investors see good profits begin to wear away as others beat them to the punch. At the same time, stocks that have become attractive price-wise due to tax selling/portfolio adjustments begin to sneak up, now that the selling pressure is lifted. Next thing, stocks of your buy list have jumped quite a bit.
Nevertheless, DO NOT take your eye off what is happening, especially to overly depressed stocks. While you are shopping, enjoying lunch-time “cheer,” or scrambling for one thing or another, THINGS WILL be happening. That stock you were planning to buy, but felt there was plenty of time to buy it, could easily rise 3% -4%, even in a down market. It’s happened to me too often.
Just a reminder: Anyone keeping track of the breadth of the market (advances/declines) should realize the year-end maneuvering will distort the numbers, often favoring decliners.
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: $554.43) Positive.
Like so many of 2013’s winners, AAPL is getting hit by year end selling and will have to probe for a level that attracts enough buyers to turn it back up. Resistance is now $562. Stock may have to slip a bit below $550 to attract buyers.
Facebook (FB:$53.32) Positive
Will replace Teradyne (TER) on S&P 500 on Dec.20, which could be the reason for its recent strength. Support is now $52.60.
IBM (IBM: $172.80) Negative (ALERT!)
As I expected, IBM continues its slippage and is now testing its 52-week low of $172.57. A volume spike in the final minutes of trading Friday which may signal buying interest. We’ll know better next week. Failure to hold there raises odds, Big Blue is headed for a selling climax in the low-to-mid $160s.
Pulte Homes (PHM: $18.03) Positive
No Change: The housing industry must now demonstrate it can gain traction. That may be in the works with the big jump in October’s New Home Sales. PHM should attract buyers in this area. if housing is a “go.” Stock has held three times in this $17.80 area. Failure to hold takes it closer to $17.10. The housing industry could easily go into limbo – bump along.
First Solar (FSLR:$53.79) Neutral
Still reeling from the bad solar news out of China. Stock needs a credible institutional research report to assure investors FSLR’s fundamentals are not following China’s track. Spikes of buying volume suggests FSLR may be attracting buyers, but more is needed. Support $54. Resistance starts at $56.25
Nike (NKE:$76.40) “the inchworm” Positive
Profit taking has accelerated. Stock has not stabilized yet. Needs a high-volume push across $76.80 to improve the pattern. This was a big drop for a stock that moves both ways in tiny increments. It did this in October and reversed to the upside.
Hewlett-Packard (HPQ: $26.77) Positive.
No change: Consolidating surge two weeks ago. Needs more upside volume to offset year-end selling. Support is 426.50. Resistance starts at $27.
Polaris Inds. (PII:133.83) Positive
No change: This erratic trading activity is characteristic of PII. Should find support at $133.30, though its volatility is so extreme, I wouldn’t rule out $131.60.
Amazon (AMZN: $384.24) Positive
Buyers starting to meet profit-takers head-on. Support is $382. Needs to break up through resistance at $390 to renew uptrend.
Pandora Media (P:27.26) Positive.
Attempt to post a big gain Friday ran into a seller. Will likely test support at $26.80. Resistance starts at $28.
Definitely not a stock for light sleepers. Has its lovers and haters. But has upside potential and moves quickly.
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
This may be the most significant week for reports on the economy and Fed action of the year.
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.”
Empire State Mfg. Svy. (8:30) Proj: Dec. index 4.50 vs. minus 2.21 Nov.
Productivity/Costs (8:30) Proj: Revised Q3 +2.9 pct.
PMI Mfg. Ix..(8:58) Proj: Dec. index 55.0
Industrial Produstion (9:15) Proj: Nov. +0.6 pct.
FOMC Meeting Begins
ICSC Goldman Store Sales
Housing Mkt. Ix. (10:00) Proj: Dec. index 55 vs. 54 Nov.
Housing Starts (8:30) Proj: Nov. 0.952 million-unit rate; permits 0.995 million-unit rate
FOMC announcement on TAPER (2:00 p.m.)
FOMC forecasts (2:00) p.m.)
Bernanke press conference (2:30)
Jobless Claims (8:30) Proj: For 12/14 week 337,000 vs. 368,000 for prior week which increased 68,000.. Claims are back up to level before shutdown. Four week avg. is only up 6,000 to 328,750
Philly Fed Svy. (10:00) Proj: December index is 10.0
Existing Home Sales (10:00) Proj: Nov. 5.02 million-unit rate vs. 5.12 million-unit rate Oct.
Leading Indicators (10:00) Proj:Nov. 0.7 pct. vs. +0.2 pct Oct.
Quadruple Witching Friday
GDP (8:30) Proj: Third estimate for Q3 is +3.6 pct. may be inflated by inventory growth estimates
Kansas City Fed. Mfg. Ix. (11:00) Proj: Dec. index is 8 vs. 7 in Nov.
RECENT POSTS - 2013
Nov 25 DJIA 16,064 Fetch the Blinders – Here come the forecasts
Nov 26 DJIA 16,072 Time to Shop for New Winners and Old Winners Getting
Whacked by Profit-Taking”
Nov 27 DJIA16,072 “December Head-Fakes Galore – Raises Risks”
Nov 29 DJIA 16,097 “Stock Market Bubbles Don’t Pop to a Full House”
Dec 2 DJIA 16.086 “Serious Stuff Coming This Week and Next”
Dec 3 DJIA 16,008 “Hunting Season – Be Armed and Ready”
Dec 4 DJIA 15,914 “Holidays, Or Not, DO NOT Take Your Eye Off This Market”
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
*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.
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