Sell Off to Create Trader's Buy

George Brooks |

SUMMARY:

   My  headline Friday  warned against a failure of the market to hold the new highs in the market, which I expected would be posted when the market opened.  

    My concern was that traders and institutions will use the increased volume generated by a rise to new highs to lock in profits, and that is exactly what they did.

    If it wasn’t Friday, it would have been this week. The technology stocks were under pressure since early March, rallied last week, but  hit a wall Thursday.

   Friday’s rout now turns a sell off into a rout, meaning the techs will undergo a selling climax in coming days as panic grips investors who will hurriedly sell when they see their handsome gains evaporating.

   It will become a trader’s buy for the techs, though a significant rebound is doubtful since the plunge Friday and this week will create  overhead supply.

BULL MARKET OVER ?

   I don’t see it yet, though the tech sell off and Q1 earnings will rough up certain stocks in coming weeks.

   Earnings for the S&P 500 are estimated  by FactSet Research to decline 1.2% in Q1, with financials and energy stocks taking the biggest hit, however a decline of this magnitude is pretty much in line with Street projections.

   TODAY:

   For weeks, I have expected an April surge, as news of  a post-winter economic rebound begin to surface. While I expected a rebound to develop from lower levels in April, the market pressed higher  in March postponing a sell off until now.

   Odds still favor an April - May rebound.  Will it press to new highs again ? I don’t know at this point, it depends on how severe this sell off is. If it is too severe, it may create too much overhead supply to  punch through. That would result in a May June sell off.

RESISTANCE: DJIA 16,469 (S&P 500: 1,873)

SUPPORT: DJIA 16,318 (S&P 500: 1,851).

 SELL in MAY, and Go Away ?

   You will soon read of that phenom. Essentially, it is the backend of the “Best Six Months” to own stocks (November 1 to May 1). Obviously, the message here is of the two six month periods, it is the worst for stocks. More in coming days.

A TECHNICAL ANALYSIS OF THE 30 DOW COMPONENTS

     At key junctures, I technically analyze each of the 30 Dow  stocks seeking a reasonable near-term downside risk, a more severe risk and an upside potential for each, then use the Dow “divisor” to convert that data back into the DJIA.

    Currently, a reasonable risk based on present circumstances is DJIA 16,157, a more severe risk is 15,888 and the upside is 16,722.  The latter would have to come after the current slide has turned the corner.

 

Investor’s first readDaily before the open

DJIA:  16,412                                                                           

S&P 500: 1,865

Nasdaq  Comp.:4,127

Russell 2000: 1,153

Monday, Apri1 7, 2014      8:55 a.m.

   RUSSIA:  

   The Russia/Ukraine crisis will be with us for  a long time. Over the weekend pro-Russian demonstrators seized administrative buildings in eastern Ukraine. Clashes  can be expected between Ukrainians and pro-Russian  Ukrainians. While that in itself won’t impact global markets, a Russian incursion into eastern Ukraine to “save” pro-Russian citizens would.

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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.

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.

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HOUSING STOCKS – A spring rebound in the economy can hardly occur without a renewal of interest in housing stocks.  While this group had a brief run last week,  Friday’s sell off stopped it in its tracks. Looks like we must get deeper into April  for enough confirmation  of a spring rebound from the severe winter weather  to get a read on how much of an improvement we can expect.

 PARTIAL LIST: 

Beazer Homes(BZH)  Friday: $21.10

PulteCorp(PHM) Friday: $19.49

Toll Brothers (TOL) Friday: $36.78

KB Homes(KBH) Friday: $17.58

DR Horton(DHI) Friday $22.31

CONCLUSION:

   All five housing stocks listed above spiked in early trading Friday, in sympathy with the major market averages. 

   I don’t see a robust rebound yet, it is now a “wait and see” situation as the Street tries to get a handle on a potential spring rebound.

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THIS WEEK’s ECONOMIC REPORTS:

The economic calendar this  week is light with the highlight being the FOMC report.

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:

Consumer Credit (3:00):

TUESDAY:

NFIB Small Business Ix.(7:30):

ICSC Goldman Store Sales(7:45):

JOLTS-Job Openings Labor Turnover(10:00):

WEDNESDAY:

MBA Purchase Apps (7:00):

Wholesale Trade (10:00):

FOMC Minutes (2:00 p.m.):

THURSDAY:

Jobless Claims (8:30):

Import/Export Prices (8:30)

FRIDAY:

PPI-FD – inflation report (8:30)

Consumer Sentiment(9:55):

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RECENT POSTS:

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

Mar 27 DJIA  16,268 Rally Failures = Lower Prices – Opportunity ! 

Mar 28 DJIA  16,264  April/May Surprise Surge ?

Mar 31 DJIA  16,323  CONFIDENCE Calls the Shot – April Opportunity ?

Apr 1   DJIA   16, 457 Rounding Top or Base for Big Upmove ?

Apr 2   DJIA   16,532  Market Wants to Run

Apr 3   DJIA   16,573  What the Market Really Needs Now is……

Apr 4   DJIA   16,572   New Highs Need to Hold Today

A Game-On Analysis, LLC publication

George  Brooks

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

Brooks007read@aol.com

Investor’s first read, is a 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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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Symbol Name Price Change % Volume
AMEN Amen Properties Inc 500.00 0.00 0.00 0

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