Rally Failures = Lower Prices - Opportunity !

George Brooks |

TODAY:

Bulls tried, but failed yesterday to penetrate  key resistance between DJIA 16,412 and 16,450 (S&P 500: 1,872 and 1,879). Both indexes got thrown back midway between the ranges, closing at the lows for the day..

   Four rally failures since March 11, suggest sellers are hovering above the market with stock for sale. While there have been some strung spikes up, the bears rule – for now.

   The charts and underlying indicators  aren’t a pretty sight, but  stand to set up at least a juicy trader’s opportunity.

   This has been kind of a lazy deterioration in technicals that must be watched closely for a sharp reversal to the upside. The catalyst would be a rebound in spring following an economically depressing winter.

   There’s a little support at DJIA 16,232 (S&P 500: 1,848). That is “iffy” support.  DJIA 16,105 (S&P 500: 1,833) would be more reasonable.

   The market has a good shot at another sharp rally starting in early/mid-April with a correction in May/June.

  

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ANOTHER 6% + CORRECTION BEFORE MAY  - UNLIKELY

   One of the Stock Trader’s Almanac’s great discoveries is the fact the stock market’s performance during thesix months between November 1 and May1 is far superior to the six months between May 1 and November 1.* The Almanac  refers to it as the “Best Six Months.”

   Over of the last 25 years, the “Best Six Months” has 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).

   Over the last 25 years,  there have been14 corrections ranging between 6% and 16%, but more than one correction of this size during the Best Six Months was rare.

   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.

   So far, the DJIA is ahead  6.0% since October 31, 2013 even with a 7% correction in the interim.  Another correction exceeding  6% is of course possible, but unlikely

Investor’s first reada daily edge before the open

DJIA:  16,268

S&P 500: 1,852

Nasdaq  Comp.:4,173

Russell 2000: 1,155

Thursday, March 27, 2014,    9:16 a.m..

.THE FED:

   Fed chief JanetYellen  said in her press conference last week  that the Fed’s  stimulus program could end this fall and benchmark interest rates could rise six months later, which places a rise in rates in the spring of 2015 rather than the second half of 2015.

   She also said the Fed was abandoning its threshold target of an unemployment rate of 6.5% for  qualitative analysis of a broad range of data, including labor market conditions, inflation expectations and financial markets.

   The Fed’s new target interest rate would be 1% at year-end 2015 and 2.25% at year-end 2016.

    Additionally, she announced another $10 billion taper to$55 billion.

    The only thing new here is the timing of a rise in interest rates, several months ahead of expectations.

    At first the market plunged, then it rallied, but Thursday was followed by a rally failure Friday after a big spike in early trading – not good.

A word of caution. Initial responses can be deceiving, since institutional investors tend to crunch numbers in response to important changes in conditions. It is possible, they may consider an earlier change in interest rates as a negative and sell down to a level they think discounts the timing of the rise.

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.

RUSSIA:

   On Friday, Russian lawmakers considered legislation, allowing it to  incorporate areas in other countries where  residents want to secede in face of  a dysfunctional central government. While commentary suggested this only applied to Ukraine,  who knows for sure at this point ?

   Russian nationalism is running high in Crimea and it can spread to other parts of Ukraine even countries that were once satellites to Russian control.

   This suggest to me a risk of civil wars breaking out in countries where the Russian language is spoken.

   For now this represents an uncertainty for investors, but that could change for the worse, and there is little the West can do about it.  No one wants to fight a land war next door to Russia, and Mr. Putin knows it.

    Sanctions are about the only deterrent the West has, but Russia has cards to play other than military, since it has economic ties to Europe, especially Germany.

    But the price Russia will pay is steep – Its Micex stock index is down 11.6% this year, compared with a drop of 4.8% for the MSCI Emerging Markets Index; S&P and Fitch cut their outlook on Russia’s credit ratings to negative from stable, a downgrade is possible next; Russia may enter a recession in Q2 or Q3; the ruble has plunged;  Russia’s borrowing costs have risen.*

    This is not over, be forewarned.

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    TECHNICAL ANALYSIS EACH OF 30 DOW STOCKS:

   At key junctures, I technically analyze each of the 30 Dow Jones industrials for a reasonable near-term  downside and a more extreme downside, as well as a near-term upside potential. I note the price for each, add them up and divide by the DJIA divisor (0.1557159) and arrive what the DJIA would be if each of the 30 stocks hit my targets.

   As of  Thursday’s close I concluded a reasonable near-term downside  for the DJIA was 15,900, a more severe near-term  downside would be 15,625. The near-term upside would be 16,511.  That’s all assuming the overall news environment doesn’t change.

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HOUSING STOCKS – Watch for a clue to the direction of the economy.

 As spring approaches, the Street will be dissecting every morsel of  economic data in search of how much of the recent slowdown in the economy is attributable to severe weather.

   A logical place to snoop is the housing industry and stocks since they should firm up before the industry stats confirm a rebound.However, the industry stats aren’t showing a rebound, though more homes are coming on the market (2.00 million in March vs. 1.88 million in February.

   On February 17, I began tracking the following housing industry  stocks  reasoning that buying by pros more in-the-know than I would give a heads-up on a general rebound in the economy when a break in the weather prompts consumers to emerge from the warmth of their homes.

   If these stocks  can rise  in face of bad news, it stands to reason the severe weather  was masking underlying strength. If the stocks cannot rise from these levels, or decline, it does not bode well for  a robust expansion in our economy.

  

Beazer Homes(BZH)  Monday: 3/24:  $19.78

PulteCorp(PHM) Monday: 3/24: $18.57

Toll Brothers (TOL) Monday: 3/24: $35.07

KB Homes(KBH) Monday: 3/24: $16.57

DR Horton(DHI) Monday:  3/24: $21.15

CONCLUSION: Last week’s brief but sharp rally in  the above housing stocks, the second time in a month suggests the Street wants to pounce, it just needs an opening.

   Last  Wednesday’s  attempt to turn the corner was cut short by Fed chief Janet Yellen’s comments in her 2:30 press conference that interest rates can be expected to rise when  the Fed’s taper ends in the fall

   BUT, a failure to respond over the last four days, suggests the industry needs time or a probe lower to a level that discounts  uncertainties.

   A spike down as a one-day reversal may be what it takes to turn the corner.

  

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THIS WEEK’s ECONOMIC REPORTS:

The economic calendar  features important reports reflecting trends in manufacturing and housing.

These reports may still be adversely impacted by severe weather conditions.

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:

Chicago Fed. Nat’l Activity Ix. (8:30): Rebounded in Feb. to  0.14 from weather impacted minus0.45 in Jan..

PMI Mfg. Ix. (9:45):March’s PMI flash index hit 55.5, down from a spike to 57.1 for the final reading in Feb..

TUESDAY:

ICSC Goldman Store Sales (7:45): Same store retail chain sales  dropped 1.5 pct. for  the Mar. 22week  Year/year is +1.7 pct.

FHFA House Price Ix. (9:00): FHFA home prices for Jan. were up 0.5 pct vs a gain of 0.7 pct in Dec.

S&P Case-Shiller House Price (9:00): Hme prices were up by this measure 0.8 pct. in Ja,.  Year/year are up 13.3 pct thru Mar.

New Home Sales (10:00)Slipped in Feb. to 440,000  (ann. Rate) from 455,000 homes.

Consumer Confidence (10:00): Rose more than projected in Feb. to 82.3 from 78.3 in Jan.

Richmond Fed. Mfg, Ix, (10:00):Feb. dropped to a minus 6 from a plus 12 in Jan..  New orders were minus 9 vs plus 14 in Jan.

State Street Investor Confidence Ix.(10:00):

WEDNESDAY:

MBA Purchase Apps (7:00):Rose 3.0 pct. in week Mar. 21 week, Year-on-year still down 17.0 pct.

Durable Goods (8:30): Rose 2.2 pct in Feb, ex-trans up 2.0 pct.

PMI Services –flash (9:45): Feb. PMI index rose to 55.5 from 53.3

THURSDAY:

GDP(8:30): The 3rd Q4 est. was revised up to plus 2.6 pct. fron 2.4 pct.  and a Q3 est. of 4.1 pct. (all annualized rates).

Jobless Claims (8:30): Dropped 10,000 for the Mar. 22 week to 311,000.

Corporate Profits (8:30):

Pending Home Sales (10:00):

Kansas City Fed Mfg< Ix, (11:00):

FRIDAY:

Personal Income/Outlays (8:30):

Consumer Sentiment (9:55):

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RECENT POSTS:

Mar 7   DJIA 16,421  Pivotal Day in the Market

Mar 10 DJIA 16,452  Important Test for the Bulls Today

Mar 11 DJIA 16,418 Gold Due For a Play ?

Mar 12 DJIA 16,351  Crimea – How Big A Negative for Stocks ?

Mar 13 DJIA 16,340  Correction to Set Up An Opportunity

Mar 14 DJIA 16,108  Selling Climax Next Week ?

Mar 17 DJIA  16,065 Rally Failure Risk, But Trader’s Buy Looms

Mar 18 DJIA 16,247  Market Vigil – Economy and Russian Nationalism

Mar 19 DJIA 16,338  A Spring Break for the Economy ?

Mar 20 DJIA 16,222  Fed Reality – Market Up, or Down ?

Mar.21 DJIA 16,331  Yellen, Putin, Economic Freeze, Quadruple Witching Friday

Mar 24 DJIA 16,302  BIG Test for the Market Today

Mar 25 DJIA 16,276  Bull Top Unlikely - Why

Mar 26 DJIA  16,367 Bulls Must Beat Key Resistance Level 

A Game-On Analysis, LLC publication

George  Brooks, Sole Member,Manager

“Investor’s first read – an edge before the open”

Brooks007read@aol.com

The writer of  Investor’s first read, is  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. Brooks may buy or sell stocks referred to herein.

 

 

 

 

 

 

 

 

 

 

 

 

 

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