Yesterday’s S&P breakout to new all-time highs failed to follow through at the close. What gives ?
It couldn’t be yesterday’s economic reports. While the numbers for the Chicago National Activity report and PMI Services Index were ugly, they were released before the market opened. The Dallas Fed. Manufacturing Index came at 10:30 but was flat.
My guess would be that the quant’s computers were programmed to do some selling on an S&P 500 breakout to new highs, assuming the increased volume created by the breakout would enable sizable positions to be unloaded without adversely impacting the price of stocks.
The stock market had a lot of economic reasons to fall out of bed last week, especially with such dire news coming out from the housing industry, a vital cog in our economic recovery (see below).
The market stalled, but didn’t fall apart, suggesting underlying strength, even though a consolidation would be healthy.
How much of the economy’s softness is due to the horrendous winter weather that has buried consumers and industry in so much of the country ?
The stock market is telling us weather is a big factor in the soft economic numbers, but more information is needed before drawing conclusions about an overall economic contraction.
Just to be safe, investors should get ready for an abrupt change in consumer and investor sentiments when warmer weather breaks out. The BIG money won’t wait for the winter ice to thaw. If it sees a little daylight it will pounce.
Supportis DJIA: 16,166 (S&P 500:1,844).
Resistancestarts at DJIA: 16,264 (S&P 500:1,854).
Investor’s first read– a daily edge before the open
S&P 500: 1,847
Nasdaq Comp.: 4,292
Russell 2000: 1,174
Tuesday, February 25, 2014, 2014 9:12 a.m.
HOUSING STOCKS RESPOND TO BAD NEWS:
Housing stocks responded positively last week to bad news, including the
Housing Market Index, MBA Purchase Apps, and Housing Starts and Existing Home Sales.
The following housing stocks were included here to track the impact of ugly industry data which could be skewed by adverse weather conditions in the Midwest and Northeast.
If the stocks held up well in face of expected horrendous data, it could indicate the Street believes the slump is temporary. If true, this would be good news for the economy as a whole, since housing is critical to the extension of the economic recovery.
Existing Home Sales were reported Friday, showing a January drop of 7.1% in the Midwest and a 3.1% drop in the Northeast, both hammered by winter storms. However, weather cannot be blamed for the 7.3% drop in existing home sales in California.
After a week of lousy data, the housing stocks failed to tank. The consensus blames bad weather for at least a good part of the bad news. The ability of housing stocks to hang tough, even rally Friday bodes well for the industry and the economy which is dependent on this critical sector for its momentum going forward.
More tests come this week, including the Case-Shiller Home Price Index today, New Home Sales tomorrow (10:00a.m.), and Pending Home Sales Friday (10:00) a.m..
Beazer Homes(BZH: 2/14/14 – $21.26): Turning up after dropping from a January high of $25.34 Monday close: $21.95
PulteCorp (PHM: 2/14/14 -$20.02): Solid Friday performance, extending recovery from an August low of $14.23. Monday close: $20.42
Toll Brothers (TOL: 2/14/14 – $37.79): High volume breakout Friday from consolidation after basing out between April and October in the $30 area. Monday close: $38.34
KB Homes(KBH: 2/14/14 – $19.03):Grinding out a recovery within a consolidation after Mid-December bottom. Monday close: $18.66
DR Horton(DHI: 2/14/14 – $23.62): Recovering from a September – November base at $18 after a drop from its May, 52-week high of $27.45. Monday close: $23.71
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 5.6% 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 years averaged gains of 11.8% with the best year up 25.6% (1998 – 1999).
With the market off to a great start in October , it looked like a BEST six months was a no-brainer. This concerned me, since my research indicated that
prior to the January –February correction, I warned over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.
We have had one correction so far since October 31, another correction is possible, but unlikely.
Over the last 25 years, only two corrections occurred during the November 1 to May1 six months. In 2002 there was a 6.2% correction in January and a 6.5% correction in March/April. In 2003, there was a 7.0% correction in Nov. 2002/December 2002 and a 12.9% correction in January/March of 2003.
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 3.6%. Conclusion: As a barometer, it still suggests a challenging year for both bulls and bears.
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.”
Chicago Fed. Nat’l Activity Ix.(8:30) Plunged in Jan. to a minus 0.39 from a minus 0.03 (revised) in Dec.
PMI Services Flash (8:58) Dropped sharply in Feb. to 52.7 from 56.7. Weather blamed.
Dallas Fed Mfg.(10:30)Unchanged in Jan. but better than projections at 2.5.
FHFA House Price Ix. (9:00)
S&P Case-Shiller Home Price Ix.(9:00)
Consumer Confidence (10:00)
Richmond Fed. Mfg. Ix.(10:00)
State Street Investor Confidence Ix.(10:00)
MBA Purchase Apps.(7:00)
New Home Sales (10:00)
Durable Goods Orders(9:30)
Jobless Claims (8:30)
Bloomberg Consumer Confidence Ix.(9:45)
Fed chief Yellen speaks (10:00)
Kansas City Fed. Mfg Ix.(11:00)
GDP – second est. Q4 (8:30)
Chicago PMI (9:45)
Consumer Sentiment (9:55)
Pending Home Sales(10:00)
Feb 4 DJIA 15, 372 A Rally ! How Far ?
Feb 5 DJIA 15,445 Slower Economy to Delay Further Fed Taper ?
Feb 6 DJIA 15,440 Will BIG Money Step In or Step Aside ?
Feb 7 DJIA 15,628 Easy Does It – Rally Failure Possible
Feb 10 DJIA 15,794 Critical Week for Bulls
Feb 11 DJIA 15, 801 Market Crossroads – Up ? or Down ?
Feb 12 DJIA 15,994 Bulls in Charge, but……….
Feb 13 DJIA 15,963 Suddenly, Concern for the Economy
Feb 14 DJIA 16,027 Buyers Panicking ?
Feb 18 DJIA 16,154 A Brief Pause or More Upside ?
Feb 19 DJIA 16,130 Can Market Shake Off Ugly Housing Data ?
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
“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.