Speculative Phase of Bull Yet to Come

George Brooks |

While most of Europe is still in recovery mode, its woes are no longer the lead news story.
The broad-based S&P 500 is up 125% from its March 6, 2009 bear market bottom. Only two bull markets in the last 56 years have topped that (1984 – 1987 +154% and 1990 – 1998 +301%). It took the latter 93 months to top 300%, suggesting the current bull market has room to run, with corrections along the way.
The individual investor is just now working his way back into the market. While low-priced stocks have appreciated nicely, we have yet to see rank speculation, but we will before this bull has run its course.
“Optimism but with a sober tone,” is how Bank of America (BAC) CEO Brian T. Moynihan characterized the World Economic Forum in Davos, Switzerland last week. The mood contrasted drastically from 2008 prior to the global meltdown when John Thain, CEO of NYSE Group, Inc. referred to the financial markets and world economies as, “all actually in quite good shape.”
After this year’s forum, Ray Dalio, Bridgewater Associates LP, world’s largest hedge fund managing $130 billion said low interest rates will trigger a shift of money into riskier investments making 2013 a “game changer” for the economy.
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. The Vanguard Long-Term Bond ETF (BLV) is down 5.6% since mid-November. For the same period, the PowerShares, 1-30 Laddered Treasury Portfolio (PLW) yielding 2.2%, is down 4.4%, and he SPDR Barclays Long-Term Treasury ETF (TLO) yielding 2.6%, is down 6.2%. All three would be down more if I used their July highs. The short-term bonds are obviously not a problem.
Investor’s first read – an edge before the open
DJIA: 13,895.33
S&P 500: 1,502.96
Nasdaq Comp.: 3,149.71
Russell 2000: 905.24
Monday, January 28, 2013 (8:58 a.m.)

APPLE (AAPL: $439.88)
Two weeks ago, I targeted $438 as a likely support level should $468 fail to hold after a break down through $500. It hit $438 Friday, bounced briefly then closed there. It has traded below that level in pre-market trading today, raising the possibility that yet another flush is in the offing. I am watching the trades on the tape here – this is war – this is a goal line stand at $438- buyers and sellers are duking it out – no Marquess of Queensbury here – they don’t like each other.
This is encouraging, though not a bright green light. It smacks of an increasing difference of opinion – enter contrary thinkers ?
AAPL is now down 38% from its September high. That discounts a lot of adversity. If its long-term business model is disintegrating, it has more downside.
I’m not smart enough to say whether the model is or is not crumbling, and from what I have seen published on the Street in the last six months, no one else is either. Some 20 analysts have recently lowered price targets.
In cases where panic rules over reason, a stock, even the market as a whole, goes to an extreme, from which it stabilizes and rebounds. AAPL has entered that phase, which I refer to as the “I can’t stand it anymore” phase, ie., that point where investors just “want outta here.” Last week I targeted $398 as that level should $438 fail to hold.
Someone is buying, they are just getting steamrollered by panicky sellers, and that has to run its course. A year ago, the Street couldn’t buy enough AAPL fast enough. Now they are fighting to get out the exit door. It’s the late bull-to-bear converts that are adding the downside momentum.
Let’s say you really believe in Apple and think it is cheap, but aren’t one of the nation’s 1%, and don’t like trying to catch a falling knife. Buy one-tenth of what you want to own. Watch it. If you like what you see, buy another 10th. Diversification doesn’t just apply to stocks and industry groups and investment products, it applies to “when” you buy.
The “in for a dime, in for a dollar” technique is for sound sleepers only.
Resistance starts at $443.60.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $31,54): Bulls in control again. On Friday, FB was able to chew away at the selling that developed last week and post a gain for the day, Friday.. Stock looks higher.
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.
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.
The ADP Employment report (Wed. 8:15) and Employment Situation report (Fri. 8::30) are key reports this week. The final Q4 - GDP estimate comes Wed. (8:30). The last estimate was for an annualized gain of 3.1% revised up from 2.7%.
Housing has been upbeat, more importantly home prices have been rising, parly due to a shrinking number of houses for sale.
Why is this significant for consumer confidence ?
It’s called the “wealth effect.” When people feel good about their net worth, or just better about a net worth that took a big hit in the Great Recession, they will spend and invest more. Corporations will begin to spend the trillions of dollars in they have been hoarding over the years.
Business will gain traction and interest rates will rise.
People fled to U.S, Treasury bonds as a refuge from financial disaster/uncertainty. Many bought long-term bond funds intending to increase their return, since CDs, money markets, T-Bills yielded next to nothing.
As interest rates rise the value of many of these bond funds will decline.
All bubbles eventually burst !
Durable Goods (8:30)
Pending Home Sales (10:00)
Dallas Fed. Mfg. Svy. (10:30)
S&P Case-Shiller Home Price Ix. (9:00)
Consumer Confidence (10:00)
ADP Employment Rept. (8:15)
GDP (8:30)
FOMC Meeting Announcement (2:15 p.m.)
Jobless Claims (8:30)
Personal Income/Outlays (8:30)
Employment Cost Ix. 8:30)
Chicago PMI (9:45)
Employment Situation (8:30)
Consumer Sentiment (9:55)
ISM Mfg Ix. (10:00)
Construction Spending (10:00)
*Davos coverage - Bloomberg
George Brooks
“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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