The market tracked the trading pattern I outlined yesterday, which suggests the market was marching to a “technical” drumbeat rather than to external forces, namely the financial chaos in the Emerging Markets.
The market rallied at the open then leveled off a little short of my targets.
The 10-year treasury traded at 2.626% after dipping below 2.60% in face of a flight to safety, suggesting an easing in the Emerging Markets crisis abroad.
The economic news this week has been bleak, which could cause the Fed to withhold further tapering.
In recent years, until the Fed announced its first taper December 18, 2013, the market rallied on moderately bad news, since it assured the Street the Fed would not be initiating a taper out of QE. Good news was followed by lower prices over the short-term.
If the economy begins to slump further, the Street may return to its “bad is good” mentality, expecting the Fed to pass on the next taper or two.
Prior to today’s open the stock-index futures were down sharply prior to the ADP Employment report which at 175,000 new hires, fell 10,000 short of projections.
By 9:00, the futures moved up to signal a mixed to higher open and the possibility of a strong rally today to DJIA 15,590 (S&P 500: 1,770).
This would have to be a powerful rally to have credibility. No room for a rally failure.
For the moment, the Emerging Market chaos has subsided. More bad news on that front will trigger new 2014 lows.
TECHNICAL ANALYSIS – 30 Dow industrials
At important junctures, I technically analyze each of the 30 Dow industrials for a near-term reasonable risk, as well as a more severe risk, add up the totals and divide by the Dow industrials “divisor” (currently 0.155715905) to get what the DJIA would be if each of its 30 stocks hit my projected prices.
A reasonable Near-term risk would be 15,464; a more severe risk would be 15,124.
This analysis forces me to look at each component and adjust for a distortion if one or a few stocks have big moves. Percentage moves in the DJIA’s high priced moves have a bigger impact on the average than low priced stocks.
Obviously, I can’t do that for the S&P “500,” too many stocks and a different formula to arrive at the index.
Investor’s first read– a daily edge before the open
S&P 500: 1,755
Nasdaq Comp.: 4,031
Russell 2000: 1,102
Wednesday, February 5, 2014, 2014 9:14 a.m.
As January goes, so goes the stock market for the year, according to the January Barometer (JB).* The 3.6% drop in the S&P 500 in January suggests a very challenging year for investors and clearly not as rewarding as 2013 when the S&P 500 rose 29% after a 5.8% rise in the preceding January.
The JB boasts an 89% accuracy rate over the years with most of its misses explained by unpredictable events, such as war and extreme bull/bear turning points.
The rationale for the JB having predictable value is that a new year is accompanied by year-end and new year portfolio adjustments and decisions based on projections for the year ahead. It is a time when institutions receive a lot of new money that must be put to work.
Last Thursday and Friday, I warned about getting sucked in by a rally. At first glance, both days looked like a turn was in the offing. Both were head fakes. Monday
In a down market, rallies offer a “read” on the strength or weakness of the decline.
Investors need all the info they can get to tilt the odds in their favor, and then it can be difficult, because there are always several unknowns that can show up without warning to turn the market up or down.
In sharp down markets, a meaningful rebound, or “the” bottom is often signaled by an ultra high-volume plunge, a real scary, the kind no one dares to buy into. At this point, the market stalls and churns with no further loss. You can almost hear it. Like a car stuck in an icy rut – rocking back and forth - back and forth until it lurches forward, off and running.
Listen, this all doesn’t have to be rocket science. It’s a combo of common sense, human nature and a constant tug of war between buyers and sellers. Most times its unbalanced in one direction or another. At turning points it’s a toss-up. Like two teams in a tug of war with no clear winner until you see slippage on one side or the other, then more slippage, hopelessness on one side, increasing confidence on the other.
TIMING – OPPORTUNITY STOCKS
I am discontinuing coverage of the following stocks this week. Ideally, I would like to offer technical comments on a longer list, including 45 stocks that impact the market averages most, 30 Dow industrials and 15 leaders from Nasdaq. But I release this market commentary before the open every day. Time constraints and breaking news as my deadline approaches make coverage difficult.
Without a tight deadline it can be done, and maybe I’ll develop a way to do it without the tight deadline.
I started this coverage on May 21, 2012 with one stock, Facebook (FB), at $34 shortly after its $38 IPO. I was appalled at the hype and warned readers that it could drop into the mid 20s, later changed to the teens. After it hit bottom on Sept. 4, 2012 at $17.55, I continued technical coverage. On December 13, 2012, I added Apple (AAPL) to my coverage. It was getting pounded by institutions down to $539 from a September high of $705. Initially, I targeted $445 - $465 as a potential bottom, later revising it to a smidge below $400. It hit its low on Apr. 19 at $385.10. I included IBM when it too was in a tailspin, seeking a key support, then I added more stocks of interest.
I may call attention to certain stocks that develop attractive technical patterns in the future, but do not expect to write about them every day.
These stocks were based on technical analysis onlyand were not buy sell recommendations. 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: $508.79) Negative
Plunged $44 after disappointing prospects were reported for its iPhone and guidance last week. The down-gap open that followed created potential sellers above $515. Monday’s rebound sets stage for attack on $515 resistance. Still at risk in a down market, possible $480.
Facebook (FB:$62.75) Positive
Under normal conditions, support at $60 should hold. In an ugly market like this, new buyers may step back and allow sellers to take their cuts, dropping FB to $57.80 - $58.30.
IBM (IBM:$172.84) Negative
Hit new 52-week low Monday. Still reeling from disappointing earnings outlook. This is the third time down here in four months. Break below $172 raises risk of low 160s.
Pulte Homes (PHM: $19.87) Positive
Surge in Q4 sales and earnings spiked stock last week, took a hit in Monday’s sell off but stabilized Tuesday. Support now is $19.50, resistance $20.50.
First Solar (FSLR:$49.11) Negative
Thursday’s up-move reversed back down to the $48 level, which as a support level is suspect. Tuesday rebound unimpressive. Needs high-volume push across$52 to give it a chance of turning corner.
Nike (NKE:$70.51) Negative –
Hit a wall at $71.20 resistance, which is just one obstacle, $73 - $74 is even more formidable. Without a big buyer, stock works lower.
Hewlett-Packard (HPQ:$28.33) Positive.
Hammered along with the market on Monday. Resistance is $28.60. Tuesday bounce lacked volume but raises support to $27.60.
Polaris Inds. (PII:$123.04) Negative
Beat on earnings and revenues, but disappointed on guidance. Tuesday bounce was impressive. Test of support at $120 likely in weak market.
Amazon (AMZN: $347.95) Negative
Disappointing earnings and guidance after big surge last Thursday, followed by $44 drop Friday on huge volume. Weakness continued Monday. Tuesday’s bounce unimpressive.. Looks lower. Resistance is now 354, support $330 - $336.
Pandora Media (P:$35.80) Positive.
Goldman Sachs’ projection of a double next year popped the stock last Thursday. Highly volatile. Near-term support is $33.20, resistance is $37.
NOTE: I AM NEITHER LONG NOR SHORT ANY OF THE ABOVE STOCKS
The economic calendar is heavier this week.
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.”
Motor Veh. Sales: Slipped in Jan. to a 15.2 million ann. Rate from 15.4 rate in Dec.
PMI Mfg Ix. (8:58): Final Jan. index dropped 1.3 points to 53.7 from Dec. 2013
ISM MFG. Ix. (10:00): Jan. index dropped 5.2 points from Nov. New Orders plunged 13.2 points in Jan., the largest one month drop on record.
Construction Spend (10:00): Dec. spend rose 0.1 pct. vs. an increase of 0.8 pct. in Nov.
Factory Orders (10:00): Declined 1.5 pct. in Dec. after a 1.5% rise in November (revised)
ADP Employment (8:15) 175,000 new hires in Jan. 10,000 short of projections vs 227,000 in Dec. (rev.)
ISM Non-Mfg. Ix.(10:00)
International Trade (8:30)
Jobless Claims (8:30)
Employment Situation (8:30)
Consumer Credit (3:00 p.m.)
Jan 14 DJIA 16,237 How Ugly Can This Correction Get ?
Jan 15 DJIA 16,373 Correction ? Not So Fast, Says Nasdaq
Jan 16 DJIA 16,481 Stock Pickers’ Market – Rewards, Risks
Jan 17 DJIA 16,417 Stock Pickers’ Market – Where to Look
Jan 21 DJIA 16,458 Key Day in the Market – and Why
Jan 22 DJIA 16,414 Burden of Proof on Bears
Jan 23 DJIA 16,373 Strong Rebound Today = New High S&P 500
Jan 24 DJIA 16,197 Bulls – Goal Line Stand ?
Jan 27 DJIA 15,879 Christie – Mid-Terms – Market Plunge
Jan 28 DJIA 15,837 A Very, Very Key Juncture in the Market
Jan 29 DJIA 15,928 Mini-Bear ?
Jan 30 DJIA 15,738 Risky Rallies
Jan 31 DJIA 15,848 2014 – An Ominous Start – How Far Down ?
Feb 3 DJIA 15,698 January Warning for the Market
Feb 4 DJIA 15, 372 A Rally ! How Far ?
“Investor’s first read – an edge before the open”
*Stock Trader’s Almanac
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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