Market Needs Robust Economic Rebound

George Brooks |

SUMMARY:

      The stock market has already discounted an economic rebound from the winter slump, but needs better numbers to justify a surge from current levels.  

       Recent reports on the economy have been positive, but not dramatic enough to justify a major extension of the surge.

      Today’s ADP Employment report reflects an economy that is rebounding, but not robustly. Non-Farm payrolls rose 210,000 (Private sector + 179,000) in May, which is OK but not great. Mortgage purchase apps declined suggesting the housing sector is not yet contributing to the post winter rebound.

      While another month may be needed to gain a meaningful grasp of the pace of the economic recovery, the Street may lose patience and sell down to the sleeping level, ergo a 3% - 4% correction.

     

TODAY:

      The pre-open reaction of the stock-index futures to the ADP Employment report at 8:15 was slightly negative, but more economic data is forthcoming today, tomorrow and Friday.     

      The report of the PMI Services Index and ISM Non-Manufacturing Index at 10:00 may nudge the stock market one way or another, but for impact, I think the Employment Situation report Friday at 8:30 is the key.

      Over the last 9 days the DJIA is up 2.3%, the S&P 500 3.3%.

      Odds are increasing for a drop in the DJIA this week to 16,501 (S&P 500: 1,899; Nasdaq Comp.: 4,176.

   

Investor’s first read Daily edge before the open

DJIA:  16,722

S&P 500:  1,924

Nasdaq  Comp.:4,234

Russell 2000:    1,126

Wednesday,  June  4, 2014      9:15 a.m.

 

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NOTE: I continue to run “Sell in May” and “Housing” for two reasons. One, this analysis is relevant and I add important content frequently. I get new readers, and I want them to have access to this insight.

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Sell in May and Go Away ??

    So far this popular bromide has been misleading.

   While May has offered a number of timely exits, I don’t buy the “stay away” part, clearly not until November.

    Based on the market’s strength since May 21, it looks like my contrariness is being rewarded. The DJIA closed at 16,580 on April 30, has undergone two  corrections but is now higher than on May 1.

   Both of those corrections looked like the beginning of something, but turned out to be head-fakes.

   Undoubtedly, more corrections will lead “sell in May” investors to want to pack it in until November. For a while they will believe they were right, that is, until another sharp rally raises doubts.

   Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). 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 May 22. 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.  

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HOUSING:

     The economy needs a contribution from the housing sector if it is going to gain major traction coming out of the winter slump.

      Pending Home Sales rose 0.4 pct. in April vs. a gain of 3.4 pct. in March when it ended nine straight months of declines.

      Inventories continue to drop along with  falling mortgage rates, a combo that forces home prices upward, which should prompt a stampede to buy before available attractive homes are picked up. The problem, banks are not anxious to lend at such low rates and many buyers simply can’t qualify for mortgages.

      Housing stocks got some buying two weeks ago which spilled over into last week when sellers stepped in to put a lid on further appreciation.

      There is buying interest based on hopes for renewed interest in the industry, but the buyers don’t have the firepower to plow through overhead supply.

     On Tuesday, the housing stocks below continued to consolidate recent positive action.

    PARTIAL LIST :

Beazer Homes  (BZH)    $19.25

PulteCorp ($PHM):  $19.69

Toll Brothers (TOL) :  $36.22

KB Homes  (KBH) : $16.45

DR Horton  (DHI) : $23.74

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THIS WEEK’s ECONOMIC REPORTS:

      Another big week for economic news. If it indicates the economy is charging out of its winter slump, money managers can expect to ramp up buying, assuming  the outlook for corporate earnings will improve. 

      For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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 Mfg. Ix. (9:45): May up to 56.4 from 55.4 Apr. – New Orders solid 58.8

ISM Mfg. Ix. (10:00): May up to 55.4 (after correction of 53.2) vs 54.9 Apr. – New Orders up to 56.9 from 55.1)

Construction Spending (10:00): Up 0.2 pct. in Apr.  vs. gain of 0.6 in Mar.  Projection was for gain of 0.7 pct..

TUESDAY:

ICSC Goldman Store Sales (7:45) Jumped sharply 2.9 pct. in My  31 week vs. 4.2 pct. week before

Motor Vehicle Sales: Apr. light motor vehicles came in at a 16.0 million annual rate,  vs.  an annual rate of 16.5 million vehicles.

Factory Orders (10:00): Rose more than projected to +0.7 pct, unchanged from the prior month

Global Mfg. PMI (11:00):  The index for May’s manufacturing PMI was 52.2 vs 51.9 in Apr..                                                                                                                                                                                                                                                                               

WEDNESDAY:

MBA Mtg. Purchase Apps. (7:00): Declined 4.0 pct. in May 30 week;  Year/year now down 25 pct.. Refi’s declined 3.0 pct.

ADP Employment Report (8:15): Non-Farm payrolls up 210,000 in May; 179,000 Private sector. Small business picks up.

Int’l Trade (8:30):

Productivity/Costs (8:30):

PMI Services Ix.(10:00)

THURSDAY:

Jobless Claims (8:30):

Global Composite PMI 11:00):

Global Services PMI (11:00):

FRIDAY:

Employment Situation (8:30):

Consumer Credit (3:00):

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RECENT POSTS:

May 13, DJIA  16,695  Bulls in Wings – Market Needs a Spark

May 14  DJIA  16, 715 What Could Spark a Surge or Plunge

May 15  DJIA  16,613  Market Needs Help from Economy, or…

May 16  DJIA  16,446  Bulls Blinked – But Don’t Get Too Bearish

May 19  DJIA   16,491  Stock Market Getting Ready for a Move ?

May 20  DJIA   16,511  Bull Still Alive

May 21  DJIA   16,374  Market Needs Help from Fed and Economy

May 22  DJIA   16,533 Again – Stock Market Set for a Big Move

May 27  DJIA   16,606 Market to Key on Week’s Economic Reports

May 28  DJIA   16,675 Stock Market Needs  a Catalyst

May 29  DJIA   16,663 European Monetary Ease June 5 – a Catalyst ?

May 30  DJIA   16,698 A “Teaser” Market Capable of Big Moves Either Way

June 2    DJIA   16,717 Decision Time for Stocks ?

June 3    DJIA   16,743 Economy “Must” Accelerate,  or….

*Bloomberg

**Stock Trader’s Almanac

 

A Game-On Analysis,  LLC publication

George  Brooks

“Investor’s first read – a daily edge before the open”

Brooks007read@aol.com

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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
KBH KB Home 17.21 -0.05 -0.29 3,806,003
BZH Beazer Homes USA Inc. 15.09 -0.38 -2.46 1,487,063
TOL Toll Brothers Inc. 32.17 -0.81 -2.46 3,319,861
DHI D.R. Horton Inc. 28.86 -0.63 -2.14 4,670,546
PHM PulteGroup Inc. 19.60 -0.25 -1.26 5,453,217
IPXFD Santa Rosa Resources Corp. n/a n/a n/a 0

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