The stock market is at a crossroads. One road leads up, driven by improving GDPs here and abroad, an improving household net worth, increased capital expenditures by corporations, a continued friendly” Fed policy, and rebound in corporate earnings.
The other road leads down, if only over the short-to-intermediate term, driven by the concerns that a 177% rise in the S&P 500 and 233% rise by Nasdaq in the current bull market have fully discounted a host of negatives including, an uncertain U.S. economic recovery, numerous Mid-East outbreaks, slower growth in Asian economies, political dysfunction here, Europe’s woes, and the first Fed taper.
The near-term direction of the market will be determined by the flow of Q4 earnings reports and the decision by money managers that this bull market either needs a rest or is a bargain at current levels, given the absence of overwhelming negatives and corporate earnings that are expected to increase close to 11% this year.
The risk of a Q1 correction is still there, as explained below, butlast week’s rebound suggests the burden of proof is now on the bears. If a decline is going to happen in January, they have their work cut out for them.
One industry that must be watched closely is the housing industry. Housing Starts for December were reported this morning. Starts were down 9.8% vs a gain of 23.1% in November. Building permits for December were off 3.1% vs. a drop of 2.1% in November.
Of interest here is the 12% jump in the Mortgage Bankers’ Applications for the week ended Jan. 10. Refis were also up (11%). The average rate for conforming 30-year mortgage ($417,000 or less) fell 6 basis pts. To 4.72 pct.
A negative report today may be followed by improving numbers in coming months. One home builder I track is the PulteGroup (PHM) under “Timing-Opportunity Stocks” below, and its technical pattern is starting to shape up. Its reaction to today’s report will be revealing. Strength would suggest today’s numbers are a head fake.
TODAY:
The DJIA was up $41.56 Friday, the S&P 500, Nasdaq Composite, and Russell 2000 were down. However two DJIA , Visa (V:+ $10.41) and American Express (AXP: +$3.19) accounted for 87 DJIA points, so all three were down for the day.
The DJIA is price-weighted giving percent changes to higher priced stocks a greater impact on the DJIA. Percentagewise, Visa at $232, has close to 10 times the impact on the DJIA as Cisco(CSCO) at $22.74.
Supportis DJIA: 16,300 (S&P 500: 1,824)
Resistanceis DJIA 16,570 (S&P 500: 1,850)
Investor’s first read– a daily edge before the open
DJIA: 16,458
S&P 500: 1,838
Nasdaq Comp. 4,197
Russell 2000:1,168
Monday, Jan. 20, 2014 9:19 a.m.
I AM REPEATING THE FOLLOWING TO MAINTAIN AN 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
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: $540.67) Positive
Broke support and heading for a level that attracts buyers, possibly between $533 and $536. Volume did increase sharply in the $540 area – a positive.
Facebook (FB:$) Positive
Rebounded nicely Tuesday, but ran into a seller Wednesday, Thursday and Friday. Resistance is $57.40.
IBM (IBM:$190.09) Positive
Four big days in a row and IBM has put a big dent in a formidable resistance at $190. Support rises to $189..
Pulte Homes (PHM: $) Positive (Note: 12% jump mortgage apps reported by MBA).
Friday’s attempt to breakout was reversed by a big market drop Monday. Stabilized Tuesday and Wednesday. Thursday was a reversal day with potential to attack resistance between $20 and $20.50, but a soft Housing Starts report at *:30 Friday put a lid on PHM’s stock.. Of interest here is the 12% jump in the Mortgage Bankers’ Applications for the week ended Jan. 10. Refis were also up (11%). The average rate for conforming 30-year mortgage ($417,000 or less) fell 6 basis pts. To 4.72 pct. Granted it was one week in a new year, but I haven’t seen any press on this.
Resistance is $19.7 – $20. Support $19.10.
First Solar (FSLR:$51.88) Negative
Goldman Sachs really skewered this one when it downgraded it to a sell from a buy. Broke support at $51 and found some buyers north of $49, but needs big buyers to turn the corner. Was up three days in a row, but ran into sellers late Thursday and Friday. Stock has the potential to turn here. A push above $54 would improve its technical pattern.
Nike (NKE:$73.39) Negative –
Technical pattern getting uglier. Got no support Friday, got hammered instead. Resistance is $75.
Hewlett-Packard (HPQ:$29.80) Positive.
Had a decent day in a lousy market Monday but closed off from
its intraday high Tuesday. Hit a 52-week high ($29.07) Wednesday,
Thursday and Friday, though the latter was on reduced volume.
Support is now$29.30.
Polaris Inds. (PII:$136.89) Positive
No change: Still probing for support and may have to drop to $134 – $136 to find it. Resistance is $140.
Amazon (AMZN: $399.61) Positive
Locked in a trading range between $390 and $405.
Pandora Media (P:$35.12) Positive.
Stock has been responding to positive “listener” data news for 2013 year. Tuesday was a rebound day. Posted a new 52-week high Wednesday and again Thursday at $36.30, but ran into a seller Friday. Has a history of volatility, could swing two points either way.
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.
NOTE: Monday’s market plunge adversely impacted most of the technical attractiveness of the following stocks, but all except Cardtronics (CATM) stabilized or rebounded sharply. Yesterday, I have noted price levels where I thought these stocks should encounter buying (support). But the intensity of the weakness in the overall market can take them much lower. While lower prices can make a stock more attractive, a decline can be a way station en route to yet lower prices, especially if the overall market is in a tailspin. A break below these support levels can eliminate a stock from this list. These stocks were demonstrating technical strength before Monday’s slump, so they could rebound sharply. So much now depends on what the overall market does.
Align Technologies (ALGN:$63.95) Listed here (12/23) at $57.03. Support:$61.70
Gentex (GNTX: $33.54) Listed here (12/23) at $32.64. Support: $33
Netease (NTES: $79.45) Listed here (12/23) at $74.51. Reversed after hitting 52-week high $84.35. Support: $79
Spirit Airlines (SAVE: $50.00) Listed here (12/23) at $46.06. Support: $49.20
Valeant Pharm (VRX: $137.93)Listed here (12/23) at $112. Support: $137
Dycom (DY:$28.80) Listed here (12/23) at $28.05. Support: $28.75
Cognex (CGNX: $37.85)Listed here (12/23) at $36.09. Support $37.60
Salex Pharm. (SLXP: $98.56) Listed here (12/23) at $87.61. Support: $97.80
Natus Medical (BABY:$25.66) Listed here (12/24) at $22.80. Support: $25.50
Sierra Wireless (SWIR:$21.77) Listed (12/24) at $22.33. Support: $20.70
RPM Int’l ($42.83) Listed here (1/13/14) at $43.09. Support: $42.50
Silicom Ltd (SILC:$47.23) Listed here (1/13/14) at $46.44. Support: $47
Bitauto (BITA: $36.37) Listed here (1/13/14) at $36.44. Support: $36
Avery (AVY: $51.15) Listed here (1/13/14) at $50.88. Support: $51
Alexion Pharm.(ALXN: 139.71) Listed here (1/13/14) at $135.21.Support: $138.15
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
THE ECONOMY:
While the number of economic reports is light, there are several key ones, especially those for housing on Thursday
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.
WEDNESDAY:
ICSC Goldman Store Sales (7:45)
THURSDAY:
Jobless Claims (8:30) Proj: Up 4,000 for week 1/18
PMI Mfg. Ix. (8:58) Proj: January index 55 vs. 55 Dec.
Existing Home Sales (10:00) Proj: Dec 4.900 million rate vs unch from December. Year-on-year was a minus 1.2 pct.
FHFA House Price Ix. (10:00 Proj: Nov. +0.4 pct. vs a +0.5 pct. Oct.
Leading Indicators (10:00) Proj: Dec. +0.1 vs. +0.8 pct. Nov.
RECENT POSTS – 2013
Dec 26 DJIA 16,357 Year End Opportunities
Dec 27 DJIA 16,479 January 2014 Profit-Taking Will Hit Certain Stocks
Dec 30 DJIA 16,478 Be Prepared to Take Advantage of 5% January Correction
Dec 31 DJIA 16,504 Forecast: Get Ready for a Wild Ride !
2014
Jan 2 DJIA 16,504 A Raging Bull, but Corrections Offer Opportunities
Jan 3 DJIA 16,441 More Downside in the Market ?
Jan 6 DJIA 16,469 Correction or New Up-Leg ?
Jan 7 DJIA 16,425 Market at Key Crossroad
Jan 8 DJIA 16,530 Market at Key Crossroad
Jan 9 DJIA 16,462 Bull/Bear Battle Continues – Toss Up, but…
Jan 10 DJIA 16,444 Stocks: Sharp Run Up, Or Down in January ?
Jan 13 DJIA 16,437 What’s Needed to Trigger a Surge or Slide in Stocks
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
* InvesTech Research, James Stack, Editor(www.investech.com – 406/862-7777). This is clearly one of the nation’s best. Get a sample issue and see for yourself.
George Brooks
“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.
