Pivotal Week - Economy - Stock Market

George Brooks |

 SUMMARY:

The stock market got hammered Friday.  The DJIA was down140 points, BUT  84 points (60%) of that loss was accounted for by two of the 30 Dow industrial stocks  – Visa (V: -10.47)  and Goldman Sachs (GS: - 2.61).

   How so ? It’s all in the math used to calculate the DJIA.  Divide the loss of the two combined (13.08 by the Dow “divisor” (0.155715905) and you get 84, divide that by 140 for 60%. A percentage change in Visa (V: 198.93) has 7.5 X  the impact on the DJIA that the same change in General Electric (GE: 26.60) would have.

   The Street is hopeful for news that the economy is emerging from  a severe winter slump.  It may get answers this week (See below: This Week’s Economic Reports).

    Without a meaningful rebound in the economy, the stock market will have to adjust downward.

    From what I see in stats and what my “walking around the block” indicator tells me, we will get a rebound.  It will have to be robust to make a difference.

    Meanwhile, investors will have to face the prospect of  seeing stock holdings ravaged by a “miss” or near miss, as Q1 reports are released.  

   Did Amazon (AMZN) deserve to drop 9.9% and Masco (MAS) 7.4% on disappointing earnings reports ?  Is there something wrong with such an  intense focus on quarterly data ?  Stupid question, Brooksie.  You know better. It’s classic casino mentality.  If you aren’t the one getting skewered, look at the buying opportunity such silliness creates.

TODAY:

    While the stock-index futures indicate a positive open, it will be important  to watch if that bounce gets hit by sellers early on. The impact earnings misses have had on certain stocks has rattled confidence, buyers may opt for the sidelines, others  for lightening up on positions until  they see what this week’s economic reports have in store for them.

   Odds slightly favor another leg down.

Minor supportis: DJIA: 16,295; S&P 500: 1,855; Nasdaq: 4,060

Breaking that supportbecomes DJIA: 16,206; S&P 500: 1,845; Nasdaq: 4,036.

Resistance  to the upside is: DJIA: 16,420; S&P 500: 1,870; Nasdaq: 4,099.

 Investor’s first readDaily before the open

DJIA:  16,361                                                                           

S&P 500:  1,863

Nasdaq  Comp.:4,075

Russell 2000:  1,123

Monday, Apri1  28, 2014      9:06 a.m.

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

HOUSING:

   Housing stocks  got big buying last Thursday  in spite of poor industry reports. Some of that was short covering but it looks like bargain hunters couldn’t resist. A big drop in the overall market Friday dragged the group lower. (See below: “HOUSING STOCKS”)

   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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SELL in MAY, and Go Away ?

        NONSENSE !  SELL IN MAY  and STAY for one or more trading opportunities before November 1.

   You will soon read about that 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, it 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.

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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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EUROPEAN ECONOMIES:

   Manufacturing output , new orders and exports are  up for the eighth consecutive month, suggesting its recovery is real, though not yet robust. Our economy has

scratched and clawed its way out of  a horrendous recession without help from Europe.  Obviously, a recovery there stands to  accelerate the pace of  our recovery here.

   The IMF’s latest global economic forecast as it  meets in Washington this week. It sets global economic growth at 3.6% in 2014 and 3.9% for 2015, up from 3% in 2013.

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 HOUSING STOCKS –

 Housing stocks got some buying last week, but a sharp drop in the market Friday put a lid on upside activity.  The jury is still out on the industry.  It seems there are patient buyers ready to take a position, but they are not in a hurry.

PARTIAL LIST: 

Beazer Homes(BZH)  Thursday: $18.81

PulteCorp(PHM) Thursday $18.44

Toll Brothers (TOL) Thursday $34.27

KB Homes(KBH) Thursday $16.15

DR Horton(DHI)  Thursday $22.49

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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):

Dallas Fed. Mfg. (10:30):

TUESDAY:

FOMC Meeting begins

ICSC Goldman Store Sales (7:45):

S&P Case-Shiller Home Price Ix.(9:00)

Consumer Confidence (10:00):

WEDNESDAY:

ADP Employment Rpt. (8:15):

GDP (8:30):

Chicago PMI (9:45)

FOMC Meeting announcement (2:00):

THURSDAY:

Jobless Claims (8:30):

Personal Income/Outlays (8:30):

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 8   DJIA   16, 245 Buying Opportunity Possible Early Monday

Apr 9   DJIA   16,256  April Opportunity Looms

Apr 10 DJIA   16,437  Swing Factor: Q1 Earnings, Spring Rebound

Apr 11 DJIA   16,170  Computer Selling = Scary Plunge = Opportunity

Apr 14 DJIA   16,026 Spring Surge Still in the Cards

Apr 15 DJIA   16,173  Selling Climax Still to Come ?

Apr 16 DJIA   16,262  Reversal – the Start of the Spring Surge ?

Apr 17 DJIA   16,424   Beware – Earnings Distortion

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

*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.

 

 

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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