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Market Rally From Here Remains Suspect

Investors are faced with overwhelming uncertainties that coincide with the “Best six months” for owning stocks – November 1 to May 1.* This is one of the most consistent seasonal patterns. I

Investors are faced with overwhelming uncertainties that coincide with the “Best six months” for owning stocks – November 1 to May 1.* This is one of the most consistent seasonal patterns. I get into more detail after the election.

To me, this spells opportunity, but at lower prices. Get ready mentally and emotionally.
With the DJIA at 13,548, on October 19, I urged caution (“Easy Does It”). On October 26, I headlined “Raise Cash.” How big depends on one’s tolerance for risk.
Yesterday both the DJIA and S&P 500 hit a wall at my resistant levels on Thursday, briefly punched through those levels at the open Friday, then plunged sharply to close with a big loss.
Thursday’s gain was prompted by a better-than-expected Employment Report, but also by institutional buying in the first day of the new month, and for 21% of open-end mutual funds, the first day of a new fiscal year.
Any rally now is suspect, especially after the election results no matter who wins.
Resistance starts at DJIA 13,148 (S&P 500: 1419).
A break below support at DJIA 13040 (S&P 500: 1403) sets the stage for a nasty tumble. To 12, 735 (S&P 500: 1376) near-term.
I see a buying opportunity shaping up, most likely after a choppy downtrend (plunge-rally-plunge-rallt-plunge).
Investor’s first read – an edge before the market opens
DJIA: 13093.16
S&P 500: 1414.20
Nasdaq Comp.: 2982.13
Russell 2000: 814.37
(Monday, November 5, 2012 (8:58 a.m.)
This week’s economic report slate is light, but who cares ? It’s all about the election tomorrow.
Wednesday morning, the “robo calls” and pleas for money will yield hopefully to addressing issues with an open mind and a willingness to make concessions in exchange for concessions until what is best for America is achieved.
Obviously our economy is expanding, though slowly. Europe is ever so close to sliding into recession, Canada’s economy is walking in soft sand and China’s rebound is unconvincing.
Superstorm Sandy could cost the GDP 0.5 percentage points, insignificant compared with the loss of life and lifestyle caused by the storm.
That isn’t the only uncertainty facing Washington. The real horrors of a plunge over the fiscal cliff (automatic spending cuts along with the expiration or extension of the Bush-era tax cuts) will dominate the headlines of the news media. Count on them to max the angst.
On top of that is the uncertainty about corporate earnings, which will be impacted by all the above.
POLITICS: Repeat of Friday’s post for new readers.
It would seem that a Romney victory would be good for the stock market, but how much better than an increase in the DJIA of 65% since President Obama took office, plus survival from the Great Recession and an economy that has recovered, though slowly.
Obama is a “known,” Romney is as yet, an “unknown.”
That’s what has to be considered in the business of investing, politics aside.
As I noted previously, no decline in October has ever occurred when the incumbent kept his office. The DJIA closed at 13,437 on September 28. Yesterday, it closed at 13,262.
What may be an exception here is the fact October didn’t start to stink until 7 days ago, and that may be due to flat-to-down corporate earnings and the prospect for revisions in future projections. The October pattern has usually been accompanied by a down September, which this year was a boomer.*
Like it or not, we will just have to wait for Tuesday.
FACEBOOK (FB – $21.18): FB is stabilizing above $21.00. Break above $21.55 sets stage for rise to $22.45. FB’s ability to move up is complicated by millions of shares coming on the market that could be sold , shares that were in “lock-up” from its IPO. On Monday 234 million shares became eligible for sale, on Nov. 14,777 million shares become eligible and on Dec. 14 another 156 million shares. Yesterday’s volume was 99 million shares.
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.
ECONOMY: Most important reports this week
ISM Manufacturing Index (10:00) – Advanced to 55.1 in September from 53.7 in October. New orders rose to 57.7 from 53.7.
Jobless Claims (8:30) – Dropped 9,000 to 363,000 in the week ending October 27
Consumer Sentiment (9:55) – declined five tenths of a point in the final October reading of 82.6.
George Brooks
*Stock Trader’s Almanac: This is a “must own” publication, loaded with daily, weekly, monthly savvy. It is “the source” for strategies, seasonalities, recurring events, useful stats. Published annually, I have used it every year since 1968. Nothing compares !
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.

The saying that there is no such thing as a free lunch is very much true for Robinhood.