Money Manager Dilemma - Plunge Now?

George Brooks |

TODAY:

   Q1’s GDP reported Wednesday rose a paltry 0.1%. Economists expected a rise of 0.5% to 2.0%. This compares to Q4 which grew at a 2.6% clip. But recent reports on payrolls, retail and manufacturing indicate a spring pickup.  It has to be robust to drive stock prices higher, Q1 earnings won’t do the job.

   The institutions are on edge.  Will the spring rebound be great enough to goose Q2 earnings ?  Will Russia trigger a big crisis of uncertainty ? If the market weren’t probing all-time highs, the decision to buy would be easier.

 It’s kind of like these money managers are all lined up on the verge of plunging forward, each watching to see if someone else breaks ranks first. They are competing for client money and performance is the deciding factor.

Minor supportis: DJIA: 16,542; S&P 500: 1,878; Nasdaq: 4,098

Minor resistanceis DJIA: 16,590; S&P 500: 1,890; Nasdaq: 4,129

   Before moving higher, the market may need a quick two-day shake out with a strong Friday close. Research departments throughout the country are studying this week’s economic data with  tomorrow’s Employment Situation report and Factory Orders a swing factor.

Investor’s first readDaily before the open

DJIA:  16,580                                                                           

S&P 500:  1,883

Nasdaq  Comp.:4,114

Russell 2000:  1,126

Thursday, May  1, 2014      9:10 a.m.

 Sell in May and Go Away ??  (Wednesday’s headline)

   That’s a cute little jingle and the media/financial  writers enjoy these things, but they can be misleading. May has offered a number of timely exits, but I don’t buy the  “stay away” part, clearly not until November.

   You are already seeing articles about this  seasonal phenom in the press and newsletters. Essentially, it is the backend of the “Best Six Months”* to own stocks (November 1 to May 1). Obviously, the message here is of the two six month periods,  May to November is the worst for stocks. 

   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 May22.  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.

   Studies like this have to have a cut-off date, but are really intended to be accepted with an open mind, i.e. as May 1 approaches, move closer to the exit mentally, and be ready  to lock in some profits and raise some cash.

   THE TECHS:

   It’s obvious there is a shift in market leadership out of Tech stocks and into lower valuation issues. However, that shift can produce some outstanding buying opportunities  in Tech stocks at lower levels. The Techs, et al, haven’t had a big run because they didn’t have superior growth potential, or because the Street didn’t like to run them up.

   They will find a level where over-valuation crosses over to under-valuation, perhaps a technical selling extreme when their prices hit the “ouch point.”

    The BIG money may not let that happen, but it would be a good idea for investors to decide which ones they would  be comfortable owning and at what price.  

   

 

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TECHNICAL ANALYSIS OF 30 DOW STOCKS ( as of 4/25)

At key junctures, I technically analyze each of the 30 Dow industrials then convert that data back into a projected DJIA. I seek a reasonable downside and a more severe downside, as well as a projected upside potential.  This is a short-term projection, assuming no significant change in news. My reasonable downside is 16,204 and more severe downside : 16,132.  The current upside potential is 16,594

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HOUSING:

   Mortgage Bankers Association (MBA) Purchase Applications reported for  the April 25 week were down 4.0% and refi’s down 7.0%. Year/year refi’s were down 21%.   The sharp drop in refis  (y/y) is exaggerated by the fact present refis are compared with exceptionally high numbers a year ago which coincided with exceptionally low 30-year fixed mortgage rates.  When rates shot up from 3.5% to 4.5% early last year, refi’s plunged. Always look at raw numbers or a chart when given percent changes over a period of time The comparisons won’t be a dramatic in Q3 and Q4 when the year-ago numbers drop.

   If new or existing home buyers think these rates are high, they should look back  in time to 6%, 8% and 10% rates.  The reality is rates are going up, and so are home prices. At some point, home buyers will have to buy, or the market may be out of reach indefinitely.

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   RUSSIA/UKRAINE

   Russia’s annexation of Crimea was only the first step in  President Putin’s power grab.Undoubtedly, he plans to stir additional unrest in sections of Ukraine where Russian speaking people are in great numbers.  A military response by Ukraine would give him reason to invade Ukraine to protect pro-Russians and that would  have an impact on global markets, which are vulnerable to begin with.

   One of the factors that turns a  normal market correction of 3% to 5% into a much bigger correction (5% to 12%) is new negatives that hit the market when it is about to rebound from the 5% correction. A sharp escalation in the  Russia/Ukraine situation could be one of those  factors.  yesterday, the U.S. announced it was sending 600 soldiers  to Poland as a sign of support.

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HOUSING STOCKS –

 The following stocks barely budged after  Monday’s  report that Pending Home Sales surged 3.4% in March, and remained quiet Tuesday.

PARTIAL LIST: 

Beazer Homes(BZH)  Thursday: $18.96

PulteCorp(PHM) Thursday $18.39

Toll Brothers (TOL) Thursday $34.24

KB Homes(KBH) Thursday $16.51

DR Horton(DHI)  Thursday $22.28

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THIS WEEK’s ECONOMIC REPORTS:

   This is  a huge week for economic reports – huge. It may still be a month early to get a read on whether the economy will surge out of its winter slump, then too we may get the clues we have been looking for.

   For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.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:

Pending Home Sales (10:00): Surged 3.4 pct. in Mar. vs 0.5 pct. Feb.  March jump ends 9-mo. Slide.  Beat estimates of minus 1.7 pct. to plus 2.0 pct.

Dallas Fed. Mfg. (10:30): April’s production Ix. jumped to 24.7 from 17.1 in March

TUESDAY:

FOMC Meeting begins

ICSC Goldman Store Sales (7:45): Up sharply 1.6 pct.  in Apr. 26 week. Year/year now +3.1 pct.

S&P Case-Shiller Home Price Ix.(9:00):  Up 0.8 pct. in Feb. unchanged from Jan.

Consumer Confidence (10:00): Slipped slightly in Apr. to 82.3 from 83.9 in Mar..

WEDNESDAY:

MBA Purchase Apps (7:00)  Down 4.0 pct. for Apr 25 week vs. down 3.0 pct. for prior week. Apps are down 21% year/year.

ADP Employment Rpt. (8:15): Up 220,000 in Apr. vs. 209,000 in Mar. (revised).

GDP (8:30):   Q1 est. is up 0.1 pct. vs. plus 2.6 pct. for Q4

Chicago PMI (9:45)  Up to 63.0 in Apr. from 55.9 in Mar..

FOMC Meeting announcement (2:00):

THURSDAY:

Jobless Claims (8:30): Up 14,000 to 344,000 for Apr. 26 week.

Personal Income/Outlays (8:30):For Mar., Personal Income increased 0.5 pct. from 0.4 pct.; Personal Spending rose 0.9 pct. from 0.5 pct.

PMI Mfg. Ix. (9:45):

ISM Mfg. Ix. (10:00):

Construction Spending (10:00):

FRIDAY:

Employment Situation (8:30):

Factory Orders (10:00):

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RECENT POSTS:

Apr 21 DJIA   16,408  A Very Important Week for Stocks

Apr 22 DJIA   16,449  Stock Market – Coiling Spring ?

Apr 23 DJIA   16,514  Today – a Test for the Bulls

Apr 24  DJIA  16,501  Surge in Stocks – Is Economy Next ?

Apr 25 DJIA   16,501  Bears Put to Test

Apr 28  DJIA  16, 361 Pivotal Week – Economy – Stock Market

Apr 29  DJIA  16,448  Market Direction – Still a Toss Up

Apr 30, 2014   16,535  Sell in May and Go Away ??

*Stock Trader’s Almanac

A Game-On Analysis, LLC publication

George  Brooks

“Investor’s first read – an 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.

 

 

 

 

 

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