Investor’s first read – a daily edge before the open
DJIA: 16,421
S&P 500: 1,877
Nasdaq Comp.: 4,352
Russell 2000: 1,204
Friday, March 7, 2014, 2014 9:15 a.m.
TODAY:
Looks like a nice jump in prices at the open, thanks to the better-than-expected Employment Situation report.
This is a market that wants to run, if not in a general sense, than selectively.
When a market refuses to drop in face of bad or troubling news, the Bears get nervous and the Bulls get cocky.
This can translate into a speculative fever where investors take on more risk, reaching out to smaller company stocks.
Investors who were waiting for the gift of lower prices must now scramble and pay-up. It’s contagious.
What this market DOES NOT NEED NOW is a RALLY FAILURE. It can happen today. Odds don’t favor it, but investors must cool it and pick their spots carefully, and not chase stocks on the run.
I would be concerned by a rally failure and a drop below DJIA: 16,420 (S&P 500: 1,877)
SUMMARY:
The Employment Situation report this morning bumped stock-index futures up sharply after its 8:30 release. The nation added 175,000 new jobs in February (162,000 Private Sector), compared with 124,000 in January and 84,000 in December. The unemployment rate rose to 6.7% from 6.6%.
The Street was heartened by some positive economic news for a change. The market has been betting against all the troubling economic reports in recent weeks, looking out ahead of the severe weather that clearly has adversely impacted retail, manufacturing and home building in so many states.
I have been expecting a spring rally starting in March and extending into May, but really thought it would start several weeks later and from slightly lower levels.
However, I did note the “BIG money won’t wait for the winter ice to thaw. If it sees a little daylight, it will pounce.”
CAUTION ?
There is still a sense of uneasiness about Ukraine. What will Russia do now ? What can anyone do if they don’t like it ?
That kind of back and forth has to play out for a while. Unless war breaks out, I don’t see the situation impacting the market in a big way,
This suggests a stock pickers’ market more so than a big move in the market averages.
Right now, three factors are calling the shots in the market.
U.S. ECONOMY:
How much of the U.S. economic slowdown is weather related ? That’s what the Fed would like to know, but according to the content of its “Beige Book,” released yesterday the economy was adversely impacted by harsh weather in many regions of the country, cutting into production and hiring, disrupting supply chains and deliveries.
While the Beige Book reported modest improvements in eight of the Fed’s12 districts, retail sales, especially auto sales and housing were casualties.
The next FOMC meeting (first since January) will be held on March 18-19 when the Fed can weigh data on the economy to decide whether to continue to taper out of QE. Odds are, it will continue its monthly reduction.
EUROPE:
Foreign Economies, especially Europe, could be the kicker. While more data is needed, the early returns over the last four weeks are encouraging with economists predicting improvements in Germany, France, the Netherlands and Italy
What’s more, the MSCI Emerging Markets stock index advanced 3.2% in February after plunging 6.6% in January.
CONCLUSION:
This bull market will be known for climbing the steepest “wall of worry” in modern times, maybe ever. Like the pink rabbit, it grinds on, undeterred.
I think it can run the full cycle, ending in a wild speculative binge with small stocks leading the charge powered by buying by the less sophisticated investor coming off the sidelines late to the party as usual.
These investors need more convincing than others, making the plunge very close to the bull market top.
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A BEST SIX MONTHS to own stocks – No more corrections ???
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.
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1
Is this going to be another “BEST six months to own stocks ? . So far, the DJIA is ahead 5.4% since October 31, 2013 even with a 7% correction in the interim.
Over of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The “Best Six” years averaged gains of 11.8% with the best year up 25.6% (1998 – 1999).
Over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period.
We have had one correction so far since October 31, another correction is possible, but unlikely.
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JANUARY BAROMETER
As January goes, so goes the stock market for the year, according to the January Barometer (JB).* The 3.6% drop in the S&P 500 in January suggests a very challenging year for investors and clearly not as rewarding as 2013 when the S&P 500 rose 29% after a 5.8% rise in the preceding January.
The JB boasts an 89% accuracy rate over the years with most of its misses explained by unpredictable events, such as war and extreme bull/bear turning points.
The rationale for the JB having predictable value is that a new year is accompanied by year-end and new year portfolio adjustments and decisions based on projections for the year ahead. It is also a time when institutions receive a lot of new money that must be put to work.
So far in 2014, the S&P 500 is unchanged. However, since January 31, its up 4.0%. Conclusion: As a barometer, it still suggests a challenging year for both bulls and bears.
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THE ECONOMY:
The economic calendar is loaded this week with both economic and housing reports.
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:Motor Vehicle Sales: Jan. sales were at a 15.2 mil. ann. Rate vs. 15.4 mil in Dec..
Personal Income/Outlays (8:30): Personal Income rose 0.3 pct. in Jan. vs no change Dec. Spending increased 0.4 pct. vs a 0.1 pct increase in Dec..
PMI Mfg. Ix,(8:30): Feb. jumped to 57.1 from 53.7 in Jan..
ISM Mfg.Ix.(10:00):Feb index rose 1.9 points to 53.2 from 51.3 Jan..
Construction Spending (10:00): Jan. up 0.1 pct. vs gain of 1.5 pct. Dec.
TUESDAY:
ICSC Goldman Store Sales (7:45): Up 0.3 pct. for Mar. 1 week. Year over year up 1.5 pct.
WEDNESDAY:
MBA Purchase Apps (7:00): Surged 9.0 pct. for the Feb. 28 week vs. a drop of 4 pct the prior week.
ADP Employment Report (8:15): 139,000 new jobs were created in February.
PMI Services Ix.(8:58): Index dropped to 53.3 from 56.7 (weather ?)
ISM Non-Mfg, Ix.(10:00): Up 1.0 points in Jan. to 54.0.
THURSDAY:
Jobless Claims (8:30): Rose 175,000 – Unemployment 6.7%
Productivity/Costs (8:30):Q4 productivity index rose a revised 1.8% after a 3.5% jump in Q3
Bloomberg Consumer Comfort Ix. (9:45): Index improved to minus 28.5 for Mar. 2 week over minus 28.6 the prior week.
Factory Orders (10:00) Declined 0.7% in Jan. vs. decline of 2.0% in Dec..
FRIDAY:
Employment Situation (8:30):
International Trade (8:30):
Consumer Credit (3:00p.m.):
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RECENT POSTS:
2014
Feb 20 DJIA 16,040 Winter Slump – Spring Rebound ?
Feb 21 DJIA 16,133 Housing Hanging Tough – a Harbinger ?
Feb 24 DJIA 16,103 Bull Market – the Pressure to Act
Feb 25 DJIA 16,207 Rally Failure – or Start of Another Up Leg ?
Feb 26 DJIA 16,179 Monday’s Market Action – a Signal ?
Feb 27 DJIA 16,198 Market Setting Stage for an Early Spring Rally
Feb 28 DJIA 16,272 March Setting Stage for Spring Rally.
Mar 3 DJIA 16,321 Russian Bear Providing American Bull an Opportunity
Mar 4 DJIA 16,168 Crisis Almost Over – Easy Does it on Opening Prices
Mar 5 DJIA 16, 395 Street Reaching for Risk – Sneaky Strong
Mar 6 DJIA 16, 360 Selective – Stock Pickers’ Market
George Brooks
“Investor’s first read – an edge before the open”
*Stock Trader’s Almanac
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. 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. Brooks may buy or sell stocks referred to herein.
