After yesterday’s “Rally a Fake Out – Opportunities in 2013 But at Lower Prices,” I should be concerned that it was I who got faked out.
No, I’m not convinced this is little more than a relief rally, with buyers scrambling to get on board before they think the BIG money will run the table.
Add to that computers that were programmed to buy on a Congressional yea and sell on a nay and you have a rally that might have a few more legs than I gave it credit for, or it may be on its last legs for a while.
What’s more, this is a time of the year when Institutions receive an influx of monies to invest for clients and given the paltry returns T-bills, CDs and money markets yield, money managers have little option but to buy stocks.
But, the question is, does the BIG money wait for news to buy ?
If the “cliff” decision was so easy for me to call in advance, wouldn’t it have been easier for the guys pulling in the seven figures ? If they expected Congress to avoid the fiscal cliff, they wouldn’t have waited for the decision to stampede in and buy.
If you have been in this business for a while you have learned the trick is to buy low and sell high. In all fairness, that’s easier said than done, because human nature gets in the way. The time to buy is when that’s the last thing you want to do. The time to sell is when everyone is buying.
What’s happening now looks more like the latter, with investors starting to think, oh m’gosh I missed it, I better buy.
WHY I DON’T LIKE TO BUY “GAP” OPENS ?
Because most of a day’s gains are between the “opening” price and the prior day’s close. If the market does not follow through on the upside the next day, the newly bought stock may quickly become a loss.
For example, 86% of Caterpillar’s (CAT) $3,89-point gain yesterday was between the opening price and Monday’s close. Same with Amazon (AMZN), 81% of the gain took place at the open. Bank of America (BAC) and Apple (AAPL) actually closed below the day’s opening price.
DJIA: 13412.58
S&P 500: 1462.42
Nasdaq Comp.: 3112.26
Russell 2000: 873.42
Thursday, January 3, 2013 (8:58 a.m.)
No one likes people who call a top in the market. While I would rather forget it, I still remember thinking I would get a market letter off to a great start in May 1968, by alerting readers to a pending market decline. At the time speculation was rampant and people were making money they didn’t deserve to make. I was right – the market tanked big (-36%). They hated me at the time I rained on their parade and hated me more after I was right. Kindly cut me slack, if I’m negative for part of 2013.
The best way to be wrong is with your money in your pocket.
Right now, I am not calling a top, just a correction, kind of a bumpy down hill road with lots of jarring potholes for several months as reality sets in that Congress is going to be an uglier show than an Ultimate fighter grudge match.
We have the need for an increase in the nation’s debt ceiling in order to pay bills already approved and contracted for. Until the summer of 2011, it was a ho-hummer, with 8 approved raises over the last 10 years, 85 over the last 100 years. Hostilities in Congress got so ugly in 2011, the DJIA tumbled 12% in7 days following a decision to raise the debt limit. S&P lowered its credit rating for the U.S. government.
I see no reason why we won’t get round two in February/March. We crossed the line January 2, but the Treasury has enough wiggle room to buy a couple month’s time.
TODAY:
Beyond this lies a lot of Congressional haggling and the possibility of another round of brinkmanship accompanying the need for a debt ceiling increase to pay for costs already approved and incurred, not new programs.
I see new uncertainties, and that stands to be a drag on stock prices for part of the year, at least.
Post-election years have frequently been downers,* because they are used by politicians to attack unpopular issues well in advance of the mid-term elections.
Look for a mixed open.
There is still a chance the DJIA will punch to a new intraday high of 13,661 in coming days, which would trigger even more hectic buying.
I wouldn’t count on it. The BIG money isn’t “big” because it chased rising stock prices in a market that is already up
A POSITIVE NOTE:
While I am bearish about the early months of 2013, the year can produce a lot of attractive opportunities, just at lower prices.
The U.S. economy has recovered from the worst recession/bear market since the 1930s. We survived, and that is huge.
Housing is in recovery mode, increasing homeowners’ “wealth effect,” corporations are flush with cash and hopefully the 113th Congress can resolve key spending issues, setting the stage for a sustainable recovery beyond the current one.
I see an interruption to the bull market that started in March 2009, but which has not fully run its course. Individual investors are largely absent, but they will return to buy near the end of the bull market when speculation ramps up. That can be a year or two out.
BOND MARKET:
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos. As the tensions from European sovereign debt woes abate, money will flow out and into stocks where a better return is hoped for.
APPLE (AAPL: $549.03)
Yesterday I said aggressive traders who bought my “traders’ buy” at the open Monday could clip a quick profit above $550. It opened at $553.82, notched up to $555, before closing a bit below the day’s opening price. Volume was less than on Monday.
What we don’t know yet is how aggressive institutional buying will be after year-end. Since AAPL is down big in 6 weeks, many money managers may not have wanted to show it as a holding on their year-end reports, but would buy it after December 31 –hmmm.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $28.00):
JPMorgan (JPM) reiterated its buy on FB yesterday with a target of $35. That, plus a general surge in stock prices enabled FB to chew away at resistance between $28 and $29. Institutions that did not want to show FB in year end reports, may be buying now.
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 out targeting a bottom as with FB. I don’t have a position in the stock, long or short.
ECONOMY:
Note: I am going to list the economic reports will not include the numbers from the last report, since those numbers are often revised significantly and therefore potentially misleading.
I suggest you access the website: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.
THURSDAY:
ADP Employment Rpt. (8:15)
Jobless Claims (8:30)
FRIDAY:
Employment Situation (8:30)
Factory Orders (10:00)
ISM Non-Mfg. Ix. (10:00)
*Stock Trader’s Almanac: The new one is out – get it !
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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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