Charts started to show some fatigue late last week and again yesterday, suggesting a sideways consolidation where buyers pause to catch their breath and sellers clip a profit, not wanting to get too greedy after a 1,000-point (7.7%) run in the stodgy DJIA in three weeks.
A pause, even a modest orderly retrenchment in prices , would be healthy letting some investors out with a profit and others in for the next move up.
The bull market that started in early 2009, has further to run. However, let’s not forget Congress and the administration are still facing the angst of sequestration in coming months. So far, the market is dismissing it at a ho-hummer; I think it deserves more respect.
This week’s economic reports (see below) will add a little more insight into the amount of traction our current economic recovery is gaining. Any acceleration in the economy will hasten the prospect of a rise in interest rates, ergo a decline in long-term bong values.
Near-term support is DJIA 13,768 (S&P 500: 1,489). Breaking that, support is DJIA 13,715 (S&P 500: 1,484.
Investor’s first read – an edge before the open
S&P 500: 1,500.18
Nasdaq Comp.: 3,154.20
Russell 2000: 906.71
Tuesday, January 29, 2013 (9: 14 a.m.)
INTERNATIONAL – DAVOS:
“Optimism but with a sober tone,” is how Bank of America (BAC) CEO Brian T. Moynihan characterized the World Economic Forum in Davos, Switzerland last week. The mood contrasted drastically from 2008 prior to the global meltdown when John Thain, CEO of NYSE Group, Inc. referred to the financial markets and world economies as, “all actually in quite good shape.”
After this year’s forum, Ray Dalio, Bridgewater Associates LP, world’s largest hedge fund managing $130 billion said low interest rates will trigger a shift of money into riskier investments making 2013 a “game changer” for the economy.
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 Vanguard Long-Term Bond ETF (BLV) is down 5.6% since mid-November. For the same period, the PowerShares, 1-30 Laddered Treasury Portfolio (PLW) yielding 2.2%, is down 4.4%, and he SPDR Barclays Long-Term Treasury ETF (TLO) yielding 2.6%, is down 6.2%. All three would be down more if I used their July highs. The short-term bonds are obviously not a problem.
APPLE (AAPL: $449.83)
Two weeks ago, I targeted $438 as a likely support level should $468 fail to hold after a break down through $500. It hit $438 Friday, bounced briefly then closed there. Buyers showed up yesterday to absorb selling in pre-market trading and were able to sustain a gain of 10 points by the closing bell.
It was an impressive show by buyers, and indicates the beginning of a tug of war. But the sellers are still there in force, most likely reflecting decisions to sell by institutions that were late to switch from buyers to sellers.
Again, AAPL is in need of major league buying to avert another leg down. If yesterday marked the turn, AAPL should have closed much higher.
Resistance begins at $454, Breaking that clears the way for a move to $459. We really need to see a break in that persistent, unrelenting selling. When that starts to break up, AAPL buyers can take it back up to $4785 – $482.
A break below $445 signals a test of Friday’s intraday low of $435. Odds of that holding are not good. What’s needed here is very heavy buying coming in above $438, a one-day reversal where it closes at the day’s high, preferably above $455.
Another leg down would likely carry to $398 before rebounding.
AAPL is now down 38% from its September high. That discounts a lot of adversity. If its long-term business model is disintegrating, it has more downside.
Someone is buying, they are just getting steamrollered by panicky sellers, and that has to run its course. A year ago, the Street couldn’t buy enough AAPL fast enough. Now they are fighting to get out the exit door.
Let’s say you really believe in Apple and think it is cheap, but aren’t one of the nation’s 1%, and don’t like trying to catch a falling knife. Buy one-tenth of what you want to own. Watch it. If you like what you see, buy another 10th. Diversification doesn’t just apply to stocks and industry groups and investment products, it applies to “when” you buy.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $32.47): Pattern is bullish, but a pause here would be healthy. Support is $32.25.
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.
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.
The ADP Employment report (Wed. 8:15) and Employment Situation report (Fri. 8::30) are key reports this week. The final Q4 – GDP estimate comes Wed. (8:30). The last estimate was for an annualized gain of 3.1% revised up from 2.7%.
Housing has been upbeat, more importantly home prices have been rising, parly due to a shrinking number of houses for sale.
Why is this significant for consumer confidence ?
It’s called the “wealth effect.” When people feel good about their net worth, or just better about a net worth that took a big hit in the Great Recession, they will spend and invest more. Corporations will begin to spend the trillions of dollars in they have been hoarding over the years.
Business will gain traction and interest rates will rise.
People fled to U.S, Treasury bonds as a refuge from financial disaster/uncertainty. Many bought long-term bond funds intending to increase their return, since CDs, money markets, T-Bills yielded next to nothing.
As interest rates rise the value of many of these bond funds will decline.
All bubbles eventually burst !
S&P Case-Shiller Home Price Ix. (9:00)
Consumer Confidence (10:00)
ADP Employment Rept. (8:15)
FOMC Meeting Announcement (2:15 p.m.)
Jobless Claims (8:30)
Personal Income/Outlays (8:30)
Employment Cost Ix. 8:30)
Chicago PMI (9:45)
Employment Situation (8:30)
Consumer Sentiment (9:55)
ISM Mfg Ix. (10:00)
Construction Spending (10:00)
*Davos coverage – Bloomberg
“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.