No Room For a Rally Failure Now

George Brooks |

Friday’s headline, “Today’s Rally Must Hold Its Gain,” applies equally to today’s market. The strength of a market can often be measured by its ability to hold a good rally when it develops, especially in a market that has been generally upbeat.

The extreme volatility over the last 17 trading days reflects a wide difference of opinion about the near-to-intermediate term direction of the market.

It’s a tug of war the bulls seem to be winning, though barely.

The two-day, 220-point drop in the bluest of blue chip DJIA last Wednesday and Thursday was a break in that wide swinging trading pattern that roiled stock prices on a daily basis.

The break was greater than the price swings preceding it, but Friday’s market came storming back and held a solid gain.
Pre-market trading indicates that surge will follow through on the upside at the open today, apparently oblivious to the looming Friday sequester deadline.

So far, the market either assumes sequester won’t have a lasting impact on the economy, or it is confident a deal will be reached before or shortly after sequester.

A year ago this crisis would have sent stock prices into a tailspin, but the economy is on a more stable footing now and investors less easily rattled, having experienced the a host of crises here and abroad over the last four years.

TODAY:

That said, a rally failure today would indicate a strong likelihood of a sharp correction to DJIA 13,665 (S&P 500:1,484). I believe a lot of the strength in the market since year-end has been fueled by the fact money managers had nowhere else to put cash to work but in stocks. However, faced with the obvious uncertainty of sequester Friday, all they have to do is cut back their buying and a correction will develop.
Obviously, a breakthrough in Washington would trigger a stampede into stocks, but that is anyone’s guess at this point.

Investor’s first read – an edge before the open
DJIA: 14,000.13
S&P 500: 1515.60
Nasdaq Comp.: 3,161.81
Russell 2000: 916.15
Monday, February 25, 2013 (9:14 a.m.)
APPLE (AAPL: $450.81)
APPL’s most recent attempt to stabilize was thrown into jeopardy last Wednesday when persistent selling caused it to break down through support at $455. It is now testing two levels that produced enough buying in late January at $435 and early February at $442 to reverse its downtrend, albeit temporarily.
Failure to hold above $442 would suggest $400 is at risk. It held above 442 Thursday and Friday. The jury is still out on a further breakdown. Down 36% from its September high, AAPL is obviously becoming attractive enough to lure buyers off the sidelines. The problem is that selling is just too steady. What is needed, big-time, is a sudden surge of enough buying to override the steady selling that has plagued the stock. That would pull more buyers off the sidelines, investors who have been waiting for someone else to make the first more. Odds are slightly better than 50-50 that will happen.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $27.13) FB broke through support at $27 Friday suggesting it must probe lower before reversing the correction that started at $32.51 on January 28. I see a chance of testing the $25.80 - $26.18 area this week.
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 target a bottom as with FB. Comments are based on technical analysis only.
ECONOMY:
This will be a heavy week for economic reports.
But the Street is heartened by favorable economic data on employment, personal income, consumer sentiment, auto sales construction spending, durable goods manufacturing, and housing.
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.
MONDAY:
Chicago Fed Nat’l Activity Ix. (8:30)
Dallas Fed Mfg. Svy.(10:30)
TUESDAY:
FHFA House Price Ix. (9:00)
S&P Case-Shiller Home Price Ix.(9:00)
New Home Sales (10:00)
Consumer Confidence (10:00)
Richmond Fed. Mfg. Ix. (10:00)
WEDNESDAY:
Durable Goods Orders (8:30)
Pending Home Sales (10:00)
THURSDAY:
GDP (8:30)
Jobless Claims (8:30)
Chicago PMI (9:45)
FRIDAY;
Personal Income/Outlays (8:30)
PMI Mfg. Ix. (8:30)
Consumer Sentiment (9:55)
ISM Mfg. Ix. (10:00)
George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com

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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.

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