Want to understand what is going on in the stock market ? It doesn’t have to be rocket science.
Stock prices are running away from institutional money managers, who are quick to buy on any pullback in prices like last Thursday’s 130-point surge following Wednesday’s 132-point drop in the DJIA.
But they are also pressed to buy after a sharp run up like Friday’s 142-point gain, which came on expected news, the ECB rate cut.
Then too, the individual investor is just starting to realize the train has left the station with a sense of panic just starting to creep in.
Their entry will mark one final blow-off phase in this bull market, a wild speculative binge that will rekindle memories of the dot com explosion in the late 1990s.
With a lot of decisions made by computers these days, the auto-pilot BUY rules the market with little regard for potential problems here or abroad.
The market has climbed a huge wall of worries over the last four years, and the Street has become tone-deaf to new risks.
That kind of indifference will at some time hurt them, or let’s say their clients.
That is what investors MUST keep in mind when the temptation to go “all-in” becomes overwhelming.
A pullback to DJIA 14,883 (S&P 500: 1,605) is possible, followed by a sharp rally. Technically, the bulls rule here. Something BIG must happen to change their momentum. This is a light week for reports on the economy. Syria could do it, but the U.S. commitment there would be gradual.
Look for a rotation of strength. Seems like there has been a shift to quality in recent weeks, like the Dow Jones blue chips. That may open the door for technology to take a turn.
Investor’s first read – an edge before the open
S&P 500: 1,614.46
Nasdaq Comp.: 3,378.63
Russell 2000: 954.42
Monday, May 6, 2013 (9:12 a.m.)
SEQUESTER: Stay tuned, it is starting to hit. Erskin Bowles told CNBC Squawk Box yesterday sequester is a “stupid” way to handle deficit reduction.
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: $449.98)
While AAPL has had a nice run and is entitled to a breather, it hasn’t run out of steam yet, with an attack on $460 possible. Support is between $442 and $439.
. This is its 5th rally since it started its descent from its September 705 all-time high. While the four preceding it failed to follow through, this one is different. For one, it comes from a severely depressed level, off 45% from its high. For another, it is accompanied by above average volume. It broke a downtrend line five days ago at $434, so I think the bottom “is in.” A test of that bottom of sorts is likely with the 2nd bottom coming in near $426.
I am not long or short AAPL.
FACEBOOK (FB - $28.31)
As expected, FB hit resistance at $29, the same level that stopped it twice in February and backed off sharply. FB should find support at $27.87
Shareholders clearly “liked” what they heard from management Wednesday. The stock surged on heavy volume, as detractors obviously beat a retreat.
I am not long or short Facebook.
The reports on the economy are light this week with Thursday’s Jobless Claims and Fed Chief Bernanke’s speech at 9:30 Friday heading up the two key scheduled events for the week.
Consumer Credit (3:00p.m.)
Jobless Claims 8:30)
Wholesale Trade (10:00)
Fed Chief Bernnke speaks (9:30)
Treasury Budget (2:00 p.m.)
RECENT POSTS: 2013
Apr 23 DJIA 14,567 “Market to Be Up Today – Careful !”
Apr 24 DJIA 14,719 “Easy Does It ! Risks Increasing”
Apr 25 DJIA 14, 676 “Central Banks Buying Stocks – Really ?
Apr 26 DJIA 14,700 “GDP Disappoints – Market Reacts”
Apr 29 DJIA 14,712 “Market Looks to Huge Week for Economic Indicators”
Apr 30 DJIA 14,818 “Fearless Bulls ?”
May 1 DJIA 14,839 “Headwinds for Runaway Bulls ?”
May 2 DJIA 14,700 “No Room for a Rally Failure”
May 3 DJIA 14,831 “Speculative Fever Festering”
*Stock Trader’s Almanac
“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.
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