January Warning for the Market

George Brooks |

TODAY: 

Resistance starts at DJIA 15,795 (S&P 500: 1,793).Support is DJIA: 15,625 (S&P 500: 1,775) and that is very suspect.

The market should decline today. Failure to do so will trigger a rally, though risky for buyers  

JANUARY BAROMETER

As January goes, so goes the stock market for the year, according to the January Barometer (JB), developed by Yale Hirsch, Stock Trader’s Almanac in 1972 and continued today by his son Jeffrey as Editor in Chief.

   The JB boasts an 89% accuracy rate over the years with most of its “misses explained by unpredictable events, such as war and extreme bull/bear turning points.

   January’s 5.8% gain in 2013 foretold a banner year for the market with the S&P 500 posting a 29% gain. The market soared non-stop, defying  a host of negatives and uncertainties before  three 6% corrections interrupted the surge  between early June and  October.    

   The S&P 500 closed at  1,782.59 on January 31, 2014, down 3.6% for the month.

   Since 1970, there have been 17 years where January closed on the downside.  Eight were followed by losses for the year as a whole, nine by gains for the year. It makes little sense to tally average  changes for the years when the JB was wrong or right, January’s relationship to bull and bear markets and unpredictable events skew the results.

   What’s important is January sets a tone for the year. The rationale for the JB having predictive value is that  a new year is accompanied by year-end portfolio changes, and decisions for investments based on projections for the year ahead. Then too, institutions receive new money early in the year which must be put to work.

   After a 29% gain last year, January was adversely impacted this year by investors putting gains into the 2014 tax year, fiscal turmoil in Emerging Countries, pockets of softness in the housing industry, some ugly Q4 earnings reports, and the second Fed taper.

   What is the JB saying this year ?

   January’s weakness suggests 2014 will be bumpy, and could feature a mini-bear,  or Bear market.  That’s the bad news, on a brighter side it does suggest one or more buying opportunities for good timers.

    More important than how the year ends is what happens within the year. 

    Currently, the U.S. economy is in its recovery, though housing needs to rebound to keep the momentum going.

    Interest rates are low, and even though the Fed is tapering, it stands ready to back off if the economy falters.

    Having plodded through so many problems since this bull began in early March 2009,  it’s difficult to believe there is anything that can stop it now – except a technical correction, a temporary dearth of buyers and sharp increase in sellers, investors taking profits and investors fearful that the party is over.

WHAT COULD TRUMP THE JB’s FORECAST ?

   The BIG money, of course !   A collective conclusion among the managers of an awful lot of money that  they aren’t finished running the table, that looking out a year or two they see world economies sizzling and the DJIA crossing 20,000.

   Investors  have to be ready for the unexpected, and currently that is a possibility, though remote.

BEWARE:

   Here’s where it really gets tough.

   If the market runs up sharply today or in the near future, should  investors jump on board ?

The risk of doing so is that it could be just a rally in a down market, to be followed by an ugly reversal to the downside.

   The risk of NOT jumping in right away is an investor pays a higher price in get on board for exercising caution.

Investor’s first reada daily edge before the open

DJIA:  15,698

S&P 500:   1,782

Nasdaq  Comp.: 4,103

Russell 2000: 1,130

Monday, February 3, 2014, 2014   9:14 a.m.

TECHNICAL ANALYSIS – 30 Dow industrials

At important junctures, I technically analyze each of the 30 Dow industrials for a near-term reasonable risk, as well as a more severe risk, add up the totals and divide by the Dow industrials “divisor” (currently 0.155715905) to get what the DJIA would be if each of its 30 stocks hit my projected prices.

  A reasonable Near-term risk would be 15,464; a more severe risk would be 15,124.

This analysis forces me to look at each component and  adjust for a distortion if one or a few stocks have big moves. Percentage moves in the DJIA’s high priced moves have a bigger impact on the average than low priced stocks.

   Obviously, I can’t do that for the S&P “500,” too many stocks and a different formula to arrive at the index.

   Thursday and Friday, I warned about getting sucked in by a rally.  At first glance, both days looked like a turn was in the offing..  Both were head fakes.

   In a down market, rallies offer a “read” on the strength or weakness of  the decline. The best way to play it is to do just that – READ.

   Investors need all the info they can get to tilt the odds in their favor, and then it can be difficult, because there are  always several unknowns that can show up without warning to turn the market up or down.

    In sharp down markets, a meaningful rebound, or “the” bottom  is often signaled by an ultra high-volume plunge, a real scary, the kind no one dares to buy into.  At this point, the market stalls and churns with no further loss.  You can almost hear it. Like a car stuck in an icy rut – rocking  back and forth - back and forth until it lurches forward, off and running.

    Listen, this all doesn’t have to be rocket science.  It’s a combo of common sense, human nature and a constant tug of war between buyers and sellers.  Most times its unbalanced in one direction or another.  At turning points it’s a toss-up. Like two teams in a tug of war with no clear winner until you see slippage on one side or the other, then more slippage, hopelessness on one side, increasing confidence on the other.

TODAY:

 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 

RECAP OF WHAT I HAVE WARNED ABOUT FOR WEEKS:

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 3.5% 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 

I am discontinuing coverage of the following stocks this week.  Ideally, I would like to offer technical comments on a longer list, including 45 stocks that  impact the market averages most, 30 Dow industrials and 15 leaders from Nasdaq.  But I release this market commentary before the open every day.  Time constraints and breaking news  as my deadline approaches make coverage difficult.

     Without a tight deadline it can be done, and maybe I’ll develop a way to do it..

     I started coverage on May 21, 2012 with one stock, Facebook (FB), at $34 shortly after its $38 IPO.  I was appalled  at the hype and  warned readers that it could drop into the mid 20s, later changed to the teens.  After it hit bottom on Sept. 4, 2012 at $17.55, I continued technical coverage. On December 13, 2012,  I added Apple (AAPL) to my coverage.  It was getting pounded by institutions down to $539  from a September high of $705.  Initially, I targeted $445 - $465 as a potential bottom, later revising it to a smidge below $400. It hit its low  on Apr. 19 at $385.10. I included IBM when it too was in a tailspin, seeking a key support, then  I added more stocks of interest.

   I may call attention to certain stocks that develop attractive technical patterns in the future, but do not expect to write about them every day.

   These stocks  were based on technical analysis onlyand  were not buy sell recommendations. 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: $500.60) Negative

Plunged $44 after disappointing prospects were reported for its  iPhone and guidance last week.  The down-gap open that followed created potential sellers above $515. B Resistance starts at $506.  Got some buying Friday, $505 will offer resistance to upside. Support at $497 is not great. Can slide further in bad market, possibly $480.

Facebook (FB:$62.57) Positive

Market action smacks of a lot of short covering. Support now $62.

IBM (IBM:$176.68)   Negative

Still reeling from disappointing earnings outlook. Friday action unimpressive. Friday low of $175.34 will have to hold or IBM risks test of Dec. low $172.57

Pulte Homes (PHM: $20.32)  Positive 

Surge in Q4 sales and earnings spiked stock Thursday, but it gave back most of its gain.  Friday  saw a rebound on heavy volume. Support is $20, resistance $20.78.

First Solar (FSLR:$50.58)  Negative

Thursday’s up-move reversed back down with risk of a test of the $48 level.

Nike (NKE:$72.85)   Negative –

Still struggling with sellers after nice pop Thursday. Support: $72.5, resistance: $73.

Hewlett-Packard (HPQ:$29.00)  Positive.

No change: Holding up well, but next big move to be signaled by move above $29.50 or below $28.50.

Polaris Inds. (PII:$125.20)  Negative

Beat on earnings and revenues, but disappointed on guidance. Drop to $122.25 was reversed to the upside Monday. Short covering ??   $122 - $123 must hold or PII at risk of drop below $120. Big test coming.

Amazon (AMZN: $358.79) Positive/Neutral

Disappointing earnings and guidance after big surge Thursday, followed by $44 drop Friday on huge volume. Is this a casino, or what ? Resistance is now $363, if that. Downside : $330 - $340

Pandora Media (P:$36.07) Positive.

Goldman Sachs’ projection of a double next year popped the stock Thursday, Friday was a slight correction of that move. Support is $35.5, but stock is very volatile.

 

NOTE: I AM NEITHER LONG NOR SHORT ANY OF THE ABOVE STOCKS

THE ECONOMY:

The economic calendar  is heavier this week.

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.”

MONDAY:

Motor Veh. Sales (no time given)

PMI Mfg Ix. (8:58)

ISM MFG. Ix. (10:00)

Construction Spend (10:00)

TUESDAY:

Factory Orders (10:00)

WEDNESDAY:

ADP Employment (8:15)

ISM Non-Mfg. Ix.(10:00)

THURSDAY:

International Trade (8:30)

Jobless Claims (8:30)

FRIDAY:

Employment Situation (8:30)

Consumer Credit (3:00 p.m.)

2014

Jan 14   DJIA 16,237   How Ugly Can This Correction Get ?

Jan 15   DJIA 16,373   Correction ? Not So Fast, Says Nasdaq

Jan 16   DJIA 16,481   Stock Pickers’ Market – Rewards, Risks

Jan 17   DJIA  16,417  Stock Pickers’ Market – Where to Look

Jan 21   DJIA  16,458  Key Day in the Market – and Why

Jan 22   DJIA  16,414  Burden of Proof  on Bears

Jan 23   DJIA  16,373  Strong Rebound Today = New High S&P 500

Jan 24   DJIA  16,197  Bulls – Goal Line Stand ?

Jan 27   DJIA  15,879  Christie – Mid-Terms – Market Plunge

Jan 28   DJIA  15,837  A Very, Very Key Juncture in the Market

Jan 29   DJIA  15,928  Mini-Bear ?

Jan 30   DJIA  15,738  Risky Rallies

Jan 31   DJIA  15,848  2014 – An Ominous Start – How Far Down ?

  George  Brooks

“Investor’s first read – an edge before the open”

*Stock Trader’s Almanac

sensiblesleuth@gmail.com

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

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Symbol Name Price Change % Volume
SGGV Sterling Group Vntrs Inc 0.12 -0.03 -23.07 422,663

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