Institutions have money to put to work, and stocks are the only place where they have a chance at getting a return.
That’s not the best reason to invest other people’s money with a brawl looming in Washington over a debt ceiling debate and the uncertainty of who gets hurt the most from spending cuts, but the competition for managed accounts is fierce.
What now ?
IMHO, investors must be very selective with commitments and maintain a healthy cash reserve. Traders can trade aggressively, but sit close to the exit. I don’t see this as a “bet the ranch time, because the odds of losing the ranch are too high.
While Congress’ decision on extending the Bush-era tax cuts, etc removed some uncertainty from the corporate and investing environment, the debt ceiling and spending cut issue still needs a solution, and those issues will be unsettling to the markets.
TODAY: Resistance is DJIA: 13,597 (S&P 500: 1,479)
S&P 500: 1,472.63
Nasdaq Comp.: 3,117.54
Russell 2000: 882.46
Thursday, January 17, 2013 (9:15 a.m.)
A POSITIVE NOTE: Yes, I am repeating this, but read over it again, because its merits are gaining traction.
While I am bearish about the early months of 2013, the year can produce a lot of attractive opportunities, just at lower prices.
The U.S. economy has recovered from the worst recession/bear market since the 1930s. We survived, and that is huge.
Housing is in recovery mode, increasing homeowners’ “wealth effect,” corporations are flush with cash and hopefully the 113th Congress can resolve key spending issues, setting the stage for a sustainable recovery beyond the current one.
Signs of an economic recovery are surfacing in China with some forecasters becoming more optimistic about Europe’s stabilization and return to growth.
I see an interruption to the bull market in coming months that started in March 2009, but which has not fully run its course.
Individual investors are largely absent, but they will return to buy near the end of the bull market when speculation ramps up. That can be a year or two out.
A fully mature bull market almost always ends with speculation running rampant. We have not seen any sign of that yet. While corrections will interrupt this bull market and we may even see a mini-bear (down 20%), I can see this one getting pretty wild. Think of where we came from, what we have endured, and how exciting the investment environment can get if the economies of all countries become in lockstep albeit at different rates of recovery.
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 short-term bonds are obviously not the problem, but long-term bonds are vulnerable.
APPLE (AAPL: $506.37)
Well, the sellers got clothes-lined yesterday as AAPL jumped out on the upside at the opening bell in what looks like hurried short covering,* that may have resulted from announcements of Q1 earnings projections. I don’t think AAPL is out of the woods yet, traders who bought in earlier this week may want to sell at the open or at $514.
Here is a scenario that has a chance: AAPL drops to $500.77 where a bounce back up to $503.8 is likely, followed by a drop under $500 to $496.
What about the selling climax scenario I referred to yesterday ?
It’s still possible, so be very careful. In the late stages of a prolonged decline in a well-known stock, fear mounts creating more selling resulting in one final high-volume plunge that flushes out all sellers big and small, and that marks the bottom. It happens so quickly, then to everyone’s dismay, the stock rebounds sharply, as it traces out a “basing pattern from which it can eventually recover. Yesterday, I thought odds favored such a development, but AAPL rallied, delaying, or possibly eliminating a final plunge. Much depends now on the Jan. 23 earnings report and the projections that accompany it.
AAPL’s Q4 earnings are scheduled for release on Wednesday Jan. 23
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $29.96): Resistance starts at $30.33. Near-term support is $29.13. The stock was hit Tuesday by an announcement that it had lost 1.4 million active users and by news of its introduction of Graph Search, which facilitates users’ search through connections for various items of interest. I’m not sure how smarter people than I view FB’s Graph Search. Often, you have to give them a few days on deals like this to work their slide rules, which suggests FB’s slippage may reach $28.65.
FB has some 167 million users in the U.S., and 1 billion worldwide.
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.
Note: I am going to list the economic reports will not include the numbers from the last report, since those numbers are often revised significantly and therefore potentially misleading.
I suggest you access the website: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.
Jobless Claims (8:30)
Housing Starts (8:30)
Philly Fed Svy (10:00)
Consumer Sentiment (9:55)
*Short sale: An investor shorts a stock when he first borrows the shares from a broker with the obligation to return the shares in the future. He immediately sells the shares, hoping for the stock to drop in price in which case he buys it back and returns the shares to the broker. It’s more automatic than that, but you get the picture. As long as he is short he must buy back in to close his position. Sometimes the stock goes up, creating a paper loss. Sometimes, news or big buyers come in and runs the stock up triggering a lot of buying by shorts to prevent a bigger and bigger paper loss. This is called a short squeeze.
“Investor’s first read – an edge before the open”
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