Actionable insights straight to your inbox

Equities logo

January Barometer Set to Forecast More to Come

Q4’s GDP was a jolt, since it was worse than expected, but the numbers were distorted by a slash in defense spending and inventory investment.The Street may feel it necessary to take another

Q4’s GDP was a jolt, since it was worse than expected, but the numbers were distorted by a slash in defense spending and inventory investment.

The Street may feel it necessary to take another look at projections for 2013 just in case they may have missed something. Their “re-look” may slow down buying, even contribute to a consolidation for a week or two.

If the Street was really bent out of shape by the GDP numbers, the market would be taking a big hit at the open – it isn’t.

We still have the uncertainty of sequestration and Congressional discourse in coming months, which could slow down the market’s momentum, resulting in a rotation out of stocks that have racked up big gains in recent months and into laggards.

A stock market could easily become a market of stocks, which IMHO is better than everything notching up all at the same time. More opportunities are presented in stocks slipping back temporarily and invested monies are more concentrated in fewer stocks, resulting in sharper moves up. Generally, this kind of market is not good for trading market indexed ETFs. A market of stocks also encourages a broader sweep of new ideas and an increase in the willingness to become more aggressive in stock selection.

TODAY: Odds favor a rally to DJIA: 13,948 (S&P 500: 1,506). Near-term risk is DJIA 13,832 (S&P 500: 1,493)
Investor’s first read – an edge before the open
DJIA: 13,910.42
S&P 500: 1,501.96
Nasdaq Comp.: 3,142.30
Russell 2000: 896.91
Thursday, January 31, 2013 (9: 14 a.m.)

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,
It looks like the S&P 500 will post a %.2% gain this year, which gets it into the top 15 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 out.*

“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.**

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: $458.27)
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. Monday, Tuesday and Wednesday it rallied at the open, but sold off in late trading.
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%.

While AAPL’s price action in the last four 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.

Near-term support is $452, and pre-market trading suggests that level is at risk. 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 – $30.79): Sellers appeared for the second time above $32, dropping the stock $1.67 points yesterday. Between January 14 and January 18, FB’s stock dropped 8% before buyers stepped in. Obviously, there will be bouts of profit taking, the stock is up 63% in two months.

But earnings reported after the close yesterday 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.

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: 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.
Jobless Claims (8:30)
Personal Income/Outlays (8:30)
Employment Cost Ix. 8:30)
Chicago PMI (9:45)
Employment Situation (8:30)
Consumer Sentiment (9:55)
ISM Mfg Ix. (10:00)
Construction Spending (10:00)
*Stock Trader’s Almanac
**Davos coverage – Bloomberg
George Brooks
“Investor’s first read – an edge before the open”
[email protected]

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.

A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.