Whoa! Don’t tell me the quants are strutting their stuff again. While the volatility is nowhere near as extreme as in May/June 2010, it is evidence that powerful forces are moving stock prices irrationally – DJIA up 149 one day – down 129 the next, then up 99 the following day.
We have institutional and individual investors scrambling to buy a market they think is running away from them, while others with fat gains are happy to take profits in 2013.
Why wait, the uncertainty accompanying debate in Congress over whether or not to allow sequester to occur stands to be a damper on investor sentiment, may even trigger a decline.
Within 23 days Congress will have to decide what to do about sequester, the automatic spending cuts of $85 billion, which were postponed on January 2. The delay was part of a deal to extend the Bush-era tax cuts to all but the nation’s highest earners.
Uncertainty will mount with each tick of the clock as the March 1 deadline approaches. So far, the Street could care less about brinkmanship in Congress, but investors should care just in case buyers back off and sellers head for the exit. Corrections do happen.
In fact, strong Januaries in post-presidential election years have been followed by a correction/consolidation in 1961,1965, 1969, 1985, 1989, 1997, 2001, 2005, and 2009.
This bull market has room to run, but not in a straight line. Odds favor a correction or just a stall, as the March 1 sequester deadline nears. The volatility in last three days indicate investment decisions are being made based on fear of a correction and fear of missing a move in the market.
This is a whipsaw that can chew up a portfolio for investors who get caught up in the emotions. Minor support is DJIA 13,925 (S&P 500: 1,501). Resistance is DJIA 14,003 (S&P500: 1,511).
Investor’s first read – an edge before the open
S&P 500: 1,511.27
Nasdaq Comp.: 3,171.58
Russell 2000: 908.21
Wednesday, February 6, 2013 (8:55 a.m.)
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos.
As the tensions from European sovereign debt woes abate, money will flow out of safe havens and into stocks where a better return is hoped for.
APPLE (AAPL: $457.84)
Not bad ! The $435 to $442 area is attracting some buyers. A total of 71 million shares traded at $435 on Jan.25 and 28. After a rebound above $460 last week, AAPL dropped to $442 Monday and rebounded yesterday. The time interval between the two lows is too brief to qualify as a classic “double bottom” capable of launching a full-fledged reversal. The stock needs to rise to $478 - $485 to improve the negative pattern. The area of $485 - $500 is going to be very difficult to break through.
I have been targeting $444 as a level that had to hold in order to avoid a test of the January 25 low of $435. Failure of $435 to hold increases the odds of a further plunge to $398.
TODAY: Risk of a drop to $448 - $450. Resistance is $457.50
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $28.64)
Monday’s $1.62 drop turned FB’s technical pattern from positive to a weak neutral. Yesterday’s technical bounce was unimpressive, suggesting the likelihood of a drop below $28. I’m keeping resistance at $29.45.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help out targeting a bottom as with FB.
This will be a light week for economic reports. A drop in defense spending and slower inventory growth was responsible for Q4’s paltry annual growth rate of 0.1%, following a Q3 annual rate of 3.1%.
But the Street is heartened by favorable economic data on employment, personal income, consumer sentiment, auto sales construction spending, durable goods manufacturing, and housing.
I am going to list the economic reports below but will not include the numbers from the last report, since those numbers are often revised significantly and therefore are potentially misleading.
I strongly urge you to access the website: www.mam.econoday.com for detailed reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports. The site does a great job graphically illustrating key indicators.
Jobless Claims (8:30)
Productivity and Costs (*;30)
Consumer Credit (3:00)
International Trade (8:30)
Wholesale Trade (10:00)
*Investment Company Institute data reported by Bloomberg
“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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