To its credit, the market held its gains yesterday, contrary to my expectations . We can expect institutions to be buying on dips, especially a 200-point one like the DJIA posted Monday in response to inconclusive results arising from the Italian Parliamentary elections.
Three stocks, Home Depot (HD: + $3.64 ), Chevron (CVX: +$1.42 ), and IBM: (IBM:+ $1.63 ) accounted for 51 of the 116-point gain in the DJIA yesterday.
Fed chairman Ben Bernanke was grilled yesterday by the Senate Banking Committee. Obviously, the market gained some reassurance that the Fed would not withdraw from its bond buying program anytime soon, recouping half of its Monday loss.
All’s quiet on the sequester front with odds increasing it will go into effect Friday.
I expect some last minute (face saving) efforts by both parties to attempt to reach a compromise before Friday, though real progress will be delayed until later in March.
Perhaps it’s a matter of it being easier to decide to restore certain cuts that sequester automatically triggers than to decide which ones to make and by how much before the deadline. That way a politician gets credit rather than criticism and sequester is the bad guy. The posturing occurring now is just that – posturing !! This is really no way to run anything.
Republican Senators John McCain and Lindsey Graham indicated they were encouraged by a meeting with President Obama on immigration reform yesterday. Is that all they were encouraged about three days before the sequester deadline?
Jitters over the inconclusive parliamentary elections in Italy eased somewhat yesterday after the country was able sell 6.5 billion euros of debt albeit at higher interest rates.
Durable Goods: January Durable Goods Orders were down 5.2% vs. a gain of 3.7% in December. BUT, non-defense capital goods ex-aircraft were up 6.3% !! Ex-transportation were up 1.9%. Ex-defense down 0.4%.
What does this mean ?
O.K., the numbers will have to be crunched by someone savvier than I, but they suggest companies are beginning to spend some of that hoard of cash sitting idle in their coffers. Just another indication, our economic recovery is gaining traction, though gradually.
Yesterday’s bounce was “technical,” following a sharp drop Monday. The market must now factor in the increasing likelihood sequester will be triggered Friday, setting into motion increased debate in Washington ahead of the U.S. government deadline for funding its expenses on March 27.
Investors must be on guard for announcements out of both political camps for a last minute deal that would delay sequester. That would run the market back up close to Monday’s highs of DJIA 14,080 (S&P 500: 1,530).
Without that, expect resistance to the upside to start at DJIA 13, 958 (S&P 500: 1,504). Minor support is DJIA 13,838 (S&P 500: 1,491). Risk of breaking DJIA 13,700 (S&P 500: 1,480) on the downside is still high.
Investor’s first read – an edge before the open
S&P 500: 1,496.94
Nasdaq Comp.: 3,129.64
Russell 2000: 900.05
Wednesday, February 27, 2013 (9:14 a.m.)
APPLE (AAPL: $448.00)
Yesterday, I speculated that AAPL needed big buyers “pronto” to prevent a break below the January 25 low of $435 en route to another leg down. Failure to hold, I wrote, would suggest $400 is at risk. Well, AAPL got some buyers, not huge, but enough to prevent a breakdown. There definitely are buyers between $435 and $442, and yesterday’s support was enough to override the sellers with the stock posting a gain of $6.17 for the day. AAPL’s detractors (and shorts) should be getting nervous. This was the third try at breaking AAPL’s back. AAPL can hold here but cannot afford and new bad news.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $27.39) FB broke through support at $27 Friday suggesting it must probe lower before reversing the correction that started at $32.51 on January 28.
While FB was up fractionally yesterday, closing close to its high for the day after hitting a low of $26.70. While its trading volume could have been greater to qualify the day as a reversal to its three-week slide, it was encouraging.
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 target a bottom as with FB. Comments are based on technical analysis only.
This will be a heavy week for economic reports.
But the Street is heartened by favorable economic data on employment, personal income, consumer sentiment, auto sales construction spending, durable goods manufacturing, and housing.
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: www.mam.econoday.com 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.
Durable Goods Orders (8:30)
Pending Home Sales (10:00)
Jobless Claims (8:30)
Chicago PMI (9:45)
Personal Income/Outlays (8:30)
PMI Mfg. Ix. (8:30)
Consumer Sentiment (9:55)
ISM Mfg. Ix. (10:00)
“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.