More Downside in the Market?

George Brooks |

Investor’s first reada daily edge before the open

DJIA: 16,441

S&P 500:  1,831

Nasdaq  Comp.:4,143

Russell 2000:  1,150

Friday,  Jan.  3, 2014   9:13 

Much of yesterday’s selling was by investors putting gains into the 2014 tax year.

   Is this the sell off I have been warning about for weeks ?

   Too early to tell.

( See below: “I am going to repeat……”)

   We had 11  corrections of 5% or more last year with two exceeding 15%.* While 5% corrections are  unnerving, they are generally over in the matter of a week or two. It’s the ones that exceed 5% that are like a sharp poke in the gut.

   The greater than 5% ones are  news-driven or technical.  News driven start with a catalyst, an incident that is going to hang around unresolved for a while.

   The technical ones  reflect a momentary lapse in buying. Like a morning fog, they arrive, then suddenly lift.

    A modest technical correction can become a greater one, if the market is hit with bad news as it is about to turn upward. That’s when a 5 percenter becomes an 8-pecenter or worse.

   It only makes sense that investors with sizable gains in 2013, will opt to put those gains in 2014 and delay  paying the tax.

   Expect selling pressure in 2013’s winners.   If  the selling is intense it will carry over to other stocks and even send buyers to the sidelines.

    As noted Thursday, Odds favor a January correction (4.5% - 6.3%). If not in January, then during Q1.

 TODAY:

Today, but more so, next we will get a read on how anxious institutions are to buy stocks. If they are, they will use yesterday’s weakness to buy aggressively.

   If they do not gobble up stocks across the board today and next week, the correction has further to go.

   The charts are saying more downside that the DJIA is hard-pressed to top16,470, S&P 500: 1,822.

   Today’s downside risk is DJIA: 16,352 (S&P 500: 1,822).

    For the present, the Street is not worried about the stock market,  taper, the economy, Europe, China, Congress, or the Mid-East, which is good reason to be cautious about investing too aggressively, especially in stocks that have had a huge run.      

   Some of 2014’s biggest winners will be 2013’s duds.  New “winners” will emerge, and there are stocks that had a good run this year, but have further to go.

TWITTER:

Tuesday I  said Twitter (TWTR)could  “slip to$ 50.85 then bounce to $59... that  I may track it for wild-eyed, gutsy, and deep pocket traders.  If I am off-target today, I may opt out.”  It didn’t decline, but rose moderately.  While trading was shortened Tuesday, I was surprised it couldn’t follow through on its 21% plunge the preceding  two days before rebounding.  We’ll see today. A move above $65.22 suggests it has stabilized. A break below $60 suggests otherwise. It has topped $65 in pre-market trading. 

STRATEGY:

   One strategy for investors to employ under these conditions would be to buy  a partial position in a stock they want to own, but feel  it could be bought at a lower price after a market correction. If it goes higher, they are still making money. If it goes lower, they can average their cost.

   Likewise, if  an investor feels a position is vulnerable but believes it could still go higher, he can sell off  part of the  position. If it goes higher, sell the rest. If it goes lower, the higher sale averages out the shares sold at a lower price.

   As simplistic as this strategy is, it is easy to overlook under pressure.

  

I AM GOING TO REPEAT THE FOLLOWING TO MAINTAIN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.

Best Six Months to own stocks:

Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better  between November 1 and May 1 than between May 1 and November 1.

   The Almanac’s  “Best Six” goes back to 1950.  The six months is a snapshot between November and May.  Many major market advances often start before November, but the point made  here is the period between fall and May is where the action is.

 Is this going to be another “BEST six months to own stocks ?

The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*

   With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).

   THE DANGER:  over the last 25 years, there have been 14 corrections ranging between 6% and  16% during this November1  to May1 period. Seven of those started in January, two in December and four in February.

   TIMING – OPPORTUNITY STOCKS  New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns.  All on the drawing board.

   The following are based on technical analysis only and  are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of  the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly. 

Apple (AAPL: $553.13) Positive.

Got hammered at the open along with the market and is back to Monday’s lows.  $552 must hold or AAPL  slips to $544 $548, in face of market’s weakness.

Facebook (FB:$54.71) Positive

Weak rebound to its Fri/Mon. plunge, but relative to the market, it was OK. Needs to cross $55.50. Support is now $53.50 and that must hold or FB  is at risk of dropping to $50.75.

IBM (IBM:$187185.53)   Positive

Can drop to $183.60, a bounce to 184.60 then a drop to $181.

Pulte Homes (PHM: $20.08)  Positive

 There is a lot of resistance in the  $20 area. Can drop to $19.15 near-term.

First Solar (FSLR:$54.41)  Neutral, needs move across $58 to turn positive.

Huge day for FSLR with a $2.80 up-move in a crap market.  Could be in response to a Jan. 2, Seeking Alpha  article by EquityFlux,, “Solar Outlook 2014,” with a lot of good things to say about FSLR.  Has had buyers at the open in the last eight days, but no follow through until yesterday. The hurried nature of its buying suggests some short covering. Support $56.75.

Nike (NKE:$78.24)   Positive 

Unable to punch through Resistance at $79 on four  tries.  Move across $79 would improve pattern and pave the way for an attack  of 52-week high of $80.28. Can slip to $77.30 in soft market.

Hewlett-Packard (HPQ:$27.66)  Positive

Attempt to breakout and run failed last Thursday, and HP is now digesting thatmove.

 Pattern is positive.  Support is $27.60. Resistance is formidable at  $28.20

Polaris Inds. (PII:$145.00)  Positive

Finally ran into some selling after hitting new high at $146.40. Support is now $144.

Amazon (AMZN: $397.97) Positive

Got hit by sellers at $405, preventing a breakout and  run across $410. Stabilized Tuesday above $393 and rebounded on increasing volume.  Support is $396.

Pandora Media (P:$26.76) Positive.

Yesterday’s drop may have been a reaction to a Wall Street Journal article about  crowding in its field. Stock is now close to secondary support at $26.  Big difference of opinion on the Street on this one. Lots of volatility.

NEW !   NEW !  NEW !  - Technical analysis ALERT list

The following is a “Technical” alert list, stocks that have indicated an improved technical pattern.  I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their  technical pattern is improving. Normal intraday fluctuations can  offer a lower price than that listed here. Positive patterns can be interrupted by corrections.

   Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop cell in line with your tolerance for risk

ALERT LIST: IF WE GET THE CORRECTION I EXPECT< I MAY HAVE TO MAKE CHANGES IN SOME OF THESE STOCKS OR PROJECT SUPPORT LEVELS WHERE THEY WILL BE TECHNICALLY ATTRACTIVE AGAIN.

Align Technologies (ALGN:$56.96)  Listed here (12/23) at $57.03

Gentex (GNTX: $32.21)   Listed here (12/23) at $32.64. Now correcting  up-move ($29 - $34) three weeks ago Can drop to $31.35

Netease (NTES: $78.31)  Listed here (12/23) at $74.51

Spirit Airlines (SAVE: $45.65)  Listed here (12/23) at $46.06)

Valeant Pharm (VRX: $116.98)Listed here (12/23) at $112

Dycom (DY:27.45)  Listed here (12/23)12/23) at $28.05

Cognex (CGNX: $37.84)Listed here (12/23) at $36.09. Support $36.30.

Salex Pharm. (SLXP: $89.09)  Listed here (12/23) at $87.61

Natus Medical (BABY:$22.17) Listed here (12/24) at $22.80

Sierra Wireless (SWIR:$26.06) Listed (12/24) at $22.33

NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS

THE ECONOMY: 

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 Homes Sales Ix. (10:00)  Fell short of projections with a Nov. gain of 0.2 pct.

Dallas Fed. Mfg. Svy (10:30) Production index dropped to 7.1 from 16.9.

TUESDAY: 

S&P Case-Shiller Home Price Ix. (9:00) Oct. gain of 1.0 pct vs. Sept. gain 0.9 pct.  Yr over yr is 13.6 pct.

Chicago PMI (9:45) Oct. index was 59.1 vs. 63 in Sept and  65.9 Aug.

Consumer Confidence (10:00) rose 6.1 points in Dec to 78.1.

WEDNESDAY: Market Closed –New Year’s

THURSDAY:

Jobless Claims (8:30)  Down 2,000 to 339,000 for 12/28 week

PMI Mfg Ix.(8:58) Dec. index 55.0 vs Nov. 54.7.

ISM Mfg Ix. (10:00) Dec index 57 vs. 57.3 Nov.

Construction Spend (10:00) Nov. +1.0 pct.  vs. +0/9 pct Oct.

FRIDAY:

Motor Veh. Domestic Sales Dec, 12,5 mil-unit rate

Total sales 16.0 mil-unit rate.

Fed speakers:

Plosser (12:45 p.m.)

Stein (1:15 p.m.)

Lacker (1:30 p.m.)

Bernanke (2:30 p.m.)

Plosser 5:00 p.m.

RECENT POSTS - 2013

Dec 13 DJIA15,739  “Best Six Months Ahead ? Not Without an Ugly Correction in

                                    the Interim”

Dec 16 DJIA               January 30 Taper ?  If So, Fed Needs to Schedule a Press

                                    Conference – a Tip off”

Dec 17 DJIA 15,755   Fed to Taper January 30 ? It Should, Here’s Why

Dec 19 DJIA  15,875 Taper Today=Sell Off Followed by a rally – No

                                    No Taper=Rally Followed by a sell off”

Dec 23, DJIA 16,221  New Feature : “Technical “Alert” List.”

Dec 24  DJIA 16,294  Buyer Panic ?  Or Seller Ambush ?

Dec 26  DJIA 16,357  Year End Opportunities

Dec 27  DJIA 16,479  January 2014 Profit-Taking Will Hit Certain Stocks

Dec 30  DJIA  16,478 Be Prepared to Take Advantage of  5% January Correction

Dec 31  DJIA16,504   Forecast: Get Ready for a Wild Ride !!

2014

Jan 2     DJIA 16,504  A Raging Bull, but Corrections Offer Opportunities

* InvesTech Research, James Stack, Editor(www.investech.com  - 406/862-7777). This is clearly one of the nation’s best. Get a sample issue and see for yourself.

  George  Brooks

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

sensiblesleuth@gmail.com

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. Brooks may buy or sell stocks referred to herein.

 

 

 

 

 

 

 

 

 

 

 

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

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Symbol Name Price Change % Volume
SBEZF Sea Breeze Power Corp Ord 0.01 -0.00 -20.00 100

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