NOTE: Changes to :Tech Watch” – Nike, Polaris, Pandora in, Target, eBay out
My Friday post headlined, “Rally Failure and Correction Continues ?”
A sharp rally was followed by an even greater rally failure, but the market rebounded to close on the upside.
The swift sell off following the release of the FOMC minutes last Wednesday reminds us that once again the Street is worried about a Fed “taper” out of QE.
As if to pile on, interest rates perked up, CBOE 10-Year Treasury Note Yield Index (TNX) jumped 6.2% between Wednesday and Friday, the iShares 20+ Year T-Bond ETF (TLT) dropped 1.9% an amount equivalent to half its annual yield.
My scan of 100+ stocks over the weekend indicated blue chips had room to run, but a breakdown in a number of popular semi-blues and mid-caps suggests a shift to quality, at least for now.
Why ?
Money managers are nervous about a Fed taper in December/January instead of March. The October shutdown and flirt with default, not only sapped strength from the economic recovery, it skewed most of the Fed-based economic indicators, preventing the FOMC from getting a clear picture of the economic recovery.
If it turns out that the economy, with help from economies abroad, is gaining traction, the Fed may begin tapering just a wee bit, to get this issue behind it.
There is a case for waiting for Vice-Chair Yellen to take over, but her confirmation may be delayed. While the first taper represents a change in Fed policy, with more tapers to follow, it is a trade-off, i.e., less stimulus but a strengthening economy.
IMHO, the first taper will trigger a sharp sell off, but be followed by stabilization in the stock market, and a sharp recovery, but not if the market is much higher at that time.
Jeff Hirsch, Stock Trader’s Almanac.com, reminded me Friday that a market rise between May and November (Worst Six Months of the year) is more often than not followed by a strong market during the Best Six Months (November to May), that the former doesn’t steal any oomph from the latter. Hirsch breaks it down statistically to prove his point.
Sam Stovall, Chief Equity Strategist at S&P Capital IQ, highlighted this same point last Tuesday in his regular interview by www.equities.com, “As Sam Says.”
Hirsch was responding to my comment Friday that the current November to May Best Six Months will face a “special challenge since the S&P 500 is up 24% from a year ago, 10% of it coming between May and November, a time when the market characteristically declines.
I have always respected the Best and Worst Six Months as one of the most consistent seasonal tendencies for stock prices.
However, my contrary instincts nag at me to consider the possibility, the coming six months may be an exception, or let’s say will be interrupted by a sharp correction in January or March.
One thing I do not like about basing conclusions on a beginning date and ending date is it can put blinders on you in the interim.Buys can occur during the Worst Six Months (June 4, 2012 to September 14) a 16.7% intraday gain for the S&P 500. Sells (or defer purchase) can occur during the Best Six Months. Between January 19, 2010 and February 5, the S&P 500 dropped 9.2%.
This bull market has room to run, but not in a straight line.
Investor’s first read– a daily edge before the open
DJIA: 15,615
S&P 500: 1,761
Nasdaq Comp. 3,922
Russell 2000: 1,095
Monday, Nov. 4, 2013 (9:15 a.m.)
TECH WATCH: Changes: Adding Nike (NKE), Polaris Industries (PII) and Pandora (P) and dropping Target (TGT) and eBay (EBAY).
I am considering the elimination of this section and offering it in a separate publication on a subscription basis.
I would be able to cover more companies, and would not be constrained by a pre-market deadline. Comments welcome: [email protected]. Include opinion about how you think I could even improve commentary bearing in mind these are NOT buy/sell comments.
The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly.
Apple (AAPL: $520.03) Positive.
Remains in consolidation. Must break up through $528 to give it a shot at $540 and above. Friday, I said odds favored a slip to $514 – $518 first. It did that, hitting $515.84 before rebounding to $520. This is what a consolidation looks like – a lot of volatility reflecting profit taking and new investors who see the dips that selling produces as an opportunity to move in. I can see a slip to $510 – $512 in a soft market, but odds do not favor that, without an ugly surprise.
Facebook (FB: $49.75) Positive
Hit both resistance ($52) and support (49) levels Friday, closing at the latter. It does look like there is a seller at $52, and a chance it can drop to $48.65, but odds favor some consolidation within this 4-point range. It will have its work cut out for it to chew through resistance between $52 and $54.
IBM (IBM: $179.23) Negative, and it only has to work on its base a bit longer to turn positive.
No change: IBM is in the process of developing a turning pattern which will ensure investors further downside is limited. It has run into resistance at $182 and is now probing the downside for a support level where it should see buying above $178.
Pulte Homes (PHM: $17.55) Positive
Investors got the earnings report they were looking for last week pushing PHM across $18. Has had unusually volume in last six days, but encountered selling May slip to $17,48.
First Solar (FSLR:$59.14) Positive
Blowout earnings last week prompted buying and panicky short covering taking FSLR above my target level. Stock can go higher. Support is $55.65.
Target (TGT: $64.62) Now positive but with a limited short-term upside.
Yesterday’s drop didn’t damage TGT’s basing formation, but does indicate this stock still has sellers. Overall market weakness didn’t help. Resistance is $64.70, support$64.25.
Nike (NKE:$76.06) Positive
Has had a nice run from the $63 level with consolidations along the way, the most recent being a 10-day sideways range between $75 and $76. It is volatile intraday. Support is $75.70, resistance $76.70. A good market should enable NKE to move across $80 nera-term..
Hewlett-Packard (HPQ: $25.92) Positive. Hit $26 with room to spare in response to news of a $3.5 billion U.S. Navy order. Support is $25.55.
EBAY (EBAY: $51.94) Neutral but struggling
Continues to look weak with significant overhead supply, starting now at $53.
Polaris Inds. (PII: 131.09) Positive
PII has sold off from its all-time high of $136.90 and is probing for support around $130. Stock has been a huge winner, rising steadily over the past four years making it vulnerable to unexpected bad news. That said, PII’s 9-day correction raises odds it can recover from the $131 area and move higher. Resistance is $133 – $134.
Amazon (AMZN: $364.03) Positive
In an upbeat market, AMZN could move across $375. Raymond James’ Aaron Kessler’s raised his rating to Strong Buy from Market Perform with a price target of $446. Looks ready for a move to $364 – $366. $
Pandora Media (P:$25.99) Positive.
Pandora has ranged between 23 and $28 since mid-September as it digests its move up from $18. It appears to have found support in the $25.30 – $25.75 area. In a good market, increased upside volume can take it beyond $28 into the low-30s. This is a highly news sensitive stock and it can go up or down sharply without advance notice.
THE ECONOMY:
While the economic reports released this week are few in number, they are significant. Though the accuracy of these reports may still be suspect due to the shutdown, the Street will be watching for clues about the economy’s strength, since it will influence the timing of Fed taper.. Bernanke speaks at 3:30p.m. Friday.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
MONDAY:
Factory Orders (10:00) PROJ.: Aug. +0/3 pct./ For Sept. +1.7pct.
Fed’s Powell speaks (11:40)
Fed’s Rosengran speaks (4:00 p.m.)
TUESDAY:
ISM Non-Mfg.Ix. (10:00) PROJ.: Oct. index Sept. 54.5
Fed’s Lacker speaks (12:30 p.m.)
Fed’s Williams speaks (5:10p.m.)
WEDNESDAY:
Leading Indicators (10:00) PROJ.: Sept. +0.7pct.
Fed’s Pianalto speaks (1:0 p.m.)
THURSDAY:
Jobless Claims (8:30) PROJ.: For week 11/2 335,000
GDP (8:30) PROJ.: 3rd estimate Q3 +2,0 pct. annual rate
Fed’s Stein speaks (9:10)
FRIDAY:
Employment Situation (8:30) PROJ.: October 120,000, Private payrolls: 128,000. Unemployment rate 7.3 pct.
Personal Income/Outlays (9:55)PROJ.: Sept: +0.3 pct.
Consumer Sentiment (9:55)PROJ.: Nov. index: 75.0 vs. 73.2 Oct.
Fed’s Lockhart speaks (12:00p.m.)
Fed Chief Bernanke speaks (3:30p.m.)
RECENT POSTS – 2013
Oct 24 DJIA 15,413 “No Fed Taper in Sight ? Don’t Bet on It.”
Oct 25 DJIA 15,509 “Best Six Months for Owning Stocks”
Oct 28 DJIA 15,570 “Do I Detect Speculative “Fever “ ? If So, What Can
Happen”
Oct 29 DJIA 15,568 “ When Will the Small Investor Plunge ?”
Oct 30 DJIA 15,680 “Don’t Rule Out Fed Taper by Year-End”
Oct 31 DJIA 15,618 “Easy Does It ! Market Nervous, Needs Breather”
Nov 1 DJIA 15,545 “Rally Failure, Correction to Continue ?
George Brooks
“Investor’s first read – an edge before the open”
*STOCK TRADERS ALMANAC: The new annual Stock Trader’s Almanac is off the press. This is a “must,” always has been, if you are a serious investor, or intend to be a serious investor. Visit stocktradersalmanac.com for details
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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. Brooks may buy or sell stocks referred to herein.
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