Investor’s first read – Daily before the open
DJIA: 16,518
S&P 500: 1,878
Nasdaq Comp.: 4,067
Russell 2000: 1,108
Thursday, May 8, 2014 9:05 a.m.
SUMMARY:
The market liked what Fed chief Janet Yellen had to say yesterday and is was temporarily relieved that Russia’s V. Putin has pulled troops back from the border shared with Ukraine, and in addition has encouraged pro-Russian Ukrainians to opt out on its sovereignty referendum this Sunday.
Everyone will be relieved when Q1 earnings are behind us, so it’s now a question of the economy, will it emerge robustly from its winter crunch, or not ?
TODAY:
We have had four one-day reversals in a row, each suggesting a move an important move the market up or down. That indicates indecision, but yesterday’s close at the high for the day was on increased volume giving the bulls a slight edge.
The market will open mixed today. If the bears cannot get anything going early, a sharp rally is in the cards.
Primary support: DJIA 16,499; S&P 500: 1,875; Nasdaq Comp.: 4,052
Secondary support: DJIA: 16,472; S&P 500: 1,872; Nasdaq Comp.: 4,020
Resistance starts: DJIA: 16,598; S&P 500: 1,889: Nasdaq Comp.: 4,084
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Sell in May and Go Away ??
That’s a cute little jingle and the media/financial writers enjoy these things, but they can be misleading. May has offered a number of timely exits, but I don’t buy the “stay away” part, clearly not until November.
You are already seeing articles about this seasonal phenom in the press and newsletters. Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). Obviously, the message here is of the two six month periods, May to November is the worst for stocks.
This is true, but as I have noted with the Best Six Months, a lot can happen in the interim.
This bromide can’t be taken as a “given.” Of the 26 years I studied a “top” occurred in May on 10 occasions ranging from May 1 to May22. Two occurred in June and two in July. No meaningful top occurred in 12 of the years studied.
On far too many occasions over the last 26 years a May top was followed by a decline, but within months (well before Nov. 1) the market rallied sharply. I see it more as a trading opportunity – i.e. “Sell in May,” but be ready to buy back after a plunge.
Studies like this have to have a cut-off date, but are really intended to be accepted with an open mind, i.e. as May 1 approaches, move closer to the exit mentally, and be ready to lock in some profits and raise some cash.
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TECHNICAL ANALYSIS OF 30 DOW STOCKS ( as of 4/25)
At key junctures, I technically analyze each of the 30 Dow industrials then convert that data back into a projected DJIA. I seek a reasonable downside and a more severe downside, as well as a projected upside potential. This is a short-term projection, assuming no significant change in news. My reasonable downside was 16,204 and more severe downside : 16,132. The current upside potential was 16,594, which was momentarily topped last Thursday.
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HOUSING: Breaking news: MBA purchase apps surged 9% in May 2 week.
Mortgage Bankers Association (MBA) Purchase Applications reported for the April 25 week were down 4.0% and refi’s down 7.0%. Year/year refi’s were down 21%. The sharp drop in refis (y/y) is exaggerated by the fact present refis are compared with exceptionally high numbers a year ago which coincided with exceptionally low 30-year fixed mortgage rates. When rates shot up from 3.5% to 4.5% early last year, refi’s plunged. Always look at raw numbers or a chart when given percent changes over a period of time The comparisons won’t be a dramatic in Q3 and Q4 when the year-ago numbers drop.
If new or existing home buyers think these rates are high, they should look back in time to 6%, 8% and 10% rates. The reality is rates are going up, and so are home prices. At some point, home buyers will have to buy, or the market may be out of reach indefinitely.
PARTIAL LIST – HOUSING STOCKS –
Tuesday: BZH had a good day, the other four lost ground. DHI dropped 2.4% when Deutsche Bank AG dropped it from its short-term buy list.
Beazer Homes (BZH) Thursday: $19.42
PulteCorp (PHM) Thursday $18.20
Toll Brothers (TOL) Thursday $34.07
KB Homes (KBH) Thursday $16.05
DR Horton (DHI) Thursday $22.43
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RUSSIA/UKRAINE
Russia’s annexation of Crimea was only the first step in President Putin’s power grab. Undoubtedly, he plans to stir additional unrest in sections of Ukraine where Russian speaking people are in great numbers. A military response by Ukraine would give him reason to invade Ukraine to protect pro-Russians and that would have an impact on global markets, which are vulnerable to begin with.
Russia’s V.Putin did some backpedaling yesterday with the withdrawal of troops on its border with Ukraine and urging of the pro-Russian Ukrainian dissidents to forego its sovereignty referendum Sunday. While this beats another crimea-style incursion, for the time being. It’s not over.
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THIS WEEK’s ECONOMIC REPORTS:
A much lighter schedule this week with only one housing related report – MBA Purchase applications coming early Wednesday. Today we get the PMI Services Index and ISM Non-Mfg. Index, 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:
PMI Services Ix. (9:45): Apr. was 55.0 , up from mid Mar. 54.2 but down from 55.3 end of Mar.
ISM Non-Mfg. Ix. (10:00): Apr. up to 55.2 from 53.1 in Mar..
Global Mfg. Ix. (11:00): April hit six-month low of51.9 down from March 52.4
TUESDAY:
ICSC Goldman Store Sales (7:45): Down 2.0 pct. in May 2 week ; Year/year plus 2.0 pct. Weather a factor (again)
International Trade (8:30): March’s trade gap narrowed to$40.4 billion from 41.7 billion in Feb.
WEDNESDAY:
MBA Purchase Apps (7:00): Surged 9 pct. In may 2 week
Productivity/Costs (8:30): Dropped 1.7 pct. In Q1 vs. a gain of 2.3 pct. Q4 (weather !)
Consumer Credit (3:00) Non-revolving (Motor veh./ student loan) up $17.5 bn in Mar.; Revolving credit up $1.1 bn. vs. $2.7 bn Feb.
THURSDAY:
Jobless Claims (8:30): Dropped 26,000 to 319,000 for the 4/26 week. Distorted by Easter and seasonality adjustments for whatever good they are.
FRIDAY:
JOLTS –Job Openings/Labor Turnover (10:00)
Wholesale Trade(10:00):
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RECENT POSTS:
Apr 21 DJIA 16,408 A Very Important Week for Stocks
Apr 22 DJIA 16,449 Stock Market – Coiling Spring ?
Apr 23 DJIA 16,514 Today – a Test for the Bulls
Apr 24 DJIA 16,501 Surge in Stocks – Is Economy Next ?
Apr 25 DJIA 16,501 Bears Put to Test
Apr 28 DJIA 16, 361 Pivotal Week – Economy – Stock Market
Apr 29 DJIA 16,448 Market Direction – Still a Toss Up
Apr 30, DJIA 16,535 Sell in May and Go Away ??
May 1 DJIA 16,580 Money Manager Dilemma – Plunge Now
May 2 DJIA 16,558 Big Move in the Offing ?
May 5 DJIA 16,512 Bear Calling Bulls Out
May 6 DJIA 16,530 Wild Ride to Continue
*Stock Trader’s Almanac
A Game-On Analysis, LLC publication
George Brooks
“Investor’s first read – an edge before the open”
Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is 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. References to specific securities should not be construed as particularized investment advice or as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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