TODAY: Friday’s market decline fell a bit short of my targets with a rebound that will continue today with the potential for DJIA 14,615 (S&P 500: 1,562). That’s a stretch. I’m uneasy about the market’s behavior here. The big picture is bright, but near-term uncertain.
So far, the bulls have called the shots and have the clout to continue to do so. The risk here is, they will step back for a better look and that could enable sellers to depress prices further.
This year’s winners will pull back a bit, new leaders will surface – no need to rush in, plenty of opportunities.
Monday, April 22, 2013 (9:05a. m.)
The DJIA was up $10.37 (0.07 %) Friday, but the S&P 500 was up 0.88%.
It all has to do with the construction of the market averages (indexes). The DJIA is price-weighted, the S&P is market value weighted (shares x price). Without IBM’s drop of 16.46 points (-7.94%) Friday, the DJIA would have been up 126 points.
A move in IBM’s stock has the equivalent impact on the DJIA as a similar percent move in 7 stocks combined: Microsoft, American Telephone, Cisco, Hewlett-Packard, General Electric, Alcoa, Bank America, and Intel. To calculate the impact a stock or stocks have on the DJIA, divide the point(s) move by the DJIA’s “divisor,” which is now 0.130202.
While IBM is also listed in the S&P 500, its impact is smaller.
The catalyst for IBM’s 8% plunge was its earnings report where it reported earnings per share of $2.61 vs. projections of $3.05. Down 12% from its $215.90 March high, IBM is likely to slip to $186.75 before rallying to $197, setting the stage for a choppy basing action as the Street re-assesses it.
Investor’s first read – an edge before the open
S&P 500: 1,555.25
Nasdaq Comp.: 3,206.05
Russell 2000: 912.50
SEQUESTER: Stay tuned, it may become a factor.
At some point, the question will be raised about the sequester’s impact on the economy, notwithstanding the uncertainty it brings to persons at risk, directly and indirectly.
It is too early to expect anything to show up in the indicators, and it may never be a major issue if our economic recovery gains traction.
It is one of those potential negatives one has to consider along with other ingredients that lead to a decision to buy or sell.
Employers (government or private) may opt to furlough employees without pay, cut back on hours rather than release them to unemployment at the expense of the government. Even so, several weeks without pay has an impact on the economy.
This is one of those uncertainties that, along with a few others, can trigger a consolidation or pullback in the stock market.
Apple (AAPL: $390.53) One final plunge below $370 in offing.
While the break below $400 did technical and psychological damage, odds are it will have one final plunge this week below $370. Most of the sentiment on the Street is negative for its earnings scheduled for tomorrow after the close. More than a dozen analysts has cut estimates in recent weeks. The company is suffering from lower margins and fierce competition from South Korea’s Samsung, which will introduce its own smartphone this week.. With the Street expecting the worst, AAPL can always report better-than-expected earnings a higher dividend, and plans for a better use of its $137 billion cash hoard, prompting a rally.
At this point, adds favor one final flush below $370 regardless of what AAPL reports. While its 45% decline from its September $705 high discounts a lot of negatives, it should take one more sell off to clear out the bears.
I am not long or short AAPL.
FACEBOOK (FB – $25.73)
FB found support 7 cents below my support and closed up for the day. There are some technical indicators that suggest FB is stronger now than when it reverser upward on March 23 from $24.72 and rose 14% by April 11.
However, a further decline in the market can take FB down further, $22, or so..
Between Aug. and Dec. last year, a trading range between$18 and $24 developed. That should provide support for FB and a buying opportunity. That’s where a three month tug of war took place between the believers and non-believers.
I am not long or short Facebook.
Investors will be looking for assurance this week that the economy is not weakening seriously. Reports from the primary driver of our recovery, housing, will come Monday and Tuesday. Due to strong numbers in February, analysts are revising Q1 GDP estimates upward, some to 3%.
Existing Home Sales (10:00)
PMI Manufacturing Ix.(8:58)
FHFA House Price Ix. (9:00)
New Home Sales (10:00):
Richmond Home Sales (10:00)
Durable Goods Orders (8:30)
Jobless Claims (8:30)
Bloomberg Consumer Comfort Ix. (9:45)
Kansas City Fed. Mfg. Ix.(11:00)
Consumer Sentiment (9:45)
RECENT POSTS: 2013
Apr 12 DJIA 14,865 “What Will It Take to Prompt a Correction ?”
Apr 15 DJIA 14,865 “Minor Correction or Something More ?”
Apr 16 DJIA14,599 “Will Buyers Step In – or Step Back ?
Apr 17 DJIA 14,618 “Bulls Must Show Up Again Today or……”
Apr 18 DJIA 14,618 “End of Best Six Months Coming Early ?”
Apr 19 DJIA 14,537 “Greenstick Fracture ?”
*Stock Trader’s Almanac: Just one of an endless list of seasonalities and market patterns published – an invaluable guide for active and casual investors – loaded !
“Investor’s first read – an edge before the open”
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.