Stock Market Needs Help From Fed and Economy

George Brooks |

SUMMARY:

      With the market in limbo, my headline yesterday was, “Stock Market Getting Ready for a Move?” 

      It was down, primarily due to disappointing May store sales.

This morning’s weak mortgage applications for the May 16 week won’t help and that doesn’t bode well for Thursday’s Existing Home Sales tomorrow and Friday’s New Home Sales. (see “Housing” below” for details and explanation why banks are not lending).

      It is apparent that the Street is very nervous right now what with Q1 earnings, the clobbering of tech stocks and the Russia/Ukraine crisis.

      But the biggie is an economic snap-back from a severe winter. That has to happen, or this stock market is over priced.

      While there has been a lot of “corrective” action in stock prices  so far this year, it may not be enough to discount a sluggish spring rebound in the economy if that is all we get.

       Odds slightly favor a strong rebound, but essentially it’s “white knuckle time. Watch your back.

TODAY:

      Look for a higher open today, but beware of a rally failure and lower prices. Four Federal Reserve officials will be speaking at various times today (see “Week’s Economic Reports” below, including Fed chief Yellen. Additionally, the FOMC will report results from its April 29 – 30 meeting at 2:00 p.m..

      Any news that the Street interprets as new and bullish would trigger a sharp rally. More of the same, points stock prices downward.

Resistance today is:  DJIA: 16,437;  S&P 500:1,879;  Nasdaq: 4,109

A break below DJIA 16,350 calls for a drop to 16,255.

A break below S&P 500: 1,869 calls for a drop to 1,858

A break below Nasdaq Comp. 4,084 calls for a drop to 4,061

      I have a high regard for Robert Doll, head of money management at Nuveen Asset Management. His comments on Bloomberg Radio last week made a lot of sense. He said, “This is the least-believed bull markets that I’ve ever seen, From here it’s earnings, it’s fundamentals, it’s 'can the economy grow?' My guess the answer to that question is yes.”

Investor’s first readDaily edge before the open

DJIA:  16,374

S&P 500:  1,872

Nasdaq  Comp.: 4,096

Russell 2000:    1,097

Wednesday,  May  21, 2014      8:55 a.m.

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Sell in May and Go Away??

   A popular jingle this time of the year for newsletters and journalists.

   May has offered a number of timely exits, but I don’t buy the  “stay away” part, clearly not until November.

   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,  May to November is the worst for stocks. 

   This is true, but as I have noted with the Best Six Months, a lot can happen in the interim.

   This bromide can’t be taken as a “given.” Of the 26 years I studied a “top” occurred in May on 10 occasions ranging from May 1 to May 22. Two occurred in June and two in July. No meaningful top occurred in 12 of the years studied.

   On far too many occasions over the last 26 years a May top was followed by a decline, but, within months (well before Nov. 1), the market rallied sharply. I see it more as a trading opportunity – i.e. “Sell in May,” but be ready to buy back after a plunge.  

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HOUSING:

     We cannot  have a robust economic recovery from the severe winter months without a rebound in housing. Such a rebound would likely be preceded by an up-move in housing industry stocks.

      So far the numbers are not encouraging, but a sharp drop in long-term interest rates could pull mortgage rates down triggering increased housing activity.

      Some 31% of adults aged 18 to 34 live at home, which indicates a huge market is there for prospective home buyers.

      The problem is that banks aren’t lending. While rates are attractive to home buyers, they are too low for a bank to be interested in lending. For a clear explanation, google a January 15 opinion piece by Felix Salmon.

TUESDAY: Tuesday these stocks were down, not hard but showed little indication that someone knew of an imminent housing recovery.

    PARTIAL LIST :

Beazer Homes  (BZH)   $18.25

PulteCorp ($PHM) :  $18.60

Toll Brothers (TOL) :  $34.26

KB Homes  (KBH) : : $15.69

DR Horton  (DHI) : $21.92

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THIS WEEK’s ECONOMIC REPORTS:

      Aside from a lot of speeches by Federal Reserve officials, this will be a light reporting week. Thursday brings Existing Home Sales and Friday New Home Sales.

      For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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.”

TUESDAY:

ICSC Goldman Store Sales (7:45): Down 1.3 pct. for May 17 week – possible distortion due to Easter and (yes) weather –rain.

Fed’s Plosser speaks (12:30)

WEDNESDAY:

MBA Purchase Apps.(7:30)

Fed’ Dudley speaks (10:00)

Fed’s Yellen speaks (11:30)

Fed’s George speaks (12:50)

Fed’s Kocherlakota speaks (1:30)

FOMC Minutes released (2:00)

THURSDAY:

Jobless Claims(8:30):

PMI Mfg. Ix. Flash (9:45)

Existing Home Sales (10:00):

Leading Indicators (10:00):

Kansas City Mfg. Ix. (11:00)

FRIDAY:

New Home Sales(10:00)

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RECENT POSTS:

Apr 30, DJIA   16,535  Sell in May and Go Away ??

May 1   DJIA  16,580  Money Manager Dilemma – Plunge Now

May 2   DJIA  16,558  Big Move in the Offing ?

May 5   DJIA  16,512  Bear Calling Bulls Out

May 6   DJIA  16,530  Wild Ride to Continue

May 7   DJIA   16,401  Tech Headed For Slaughterhouse – Huge Selling Climax  

                          Buy Looms

May 8   DJIA   16,518   Major, Major Bull/Bear Crossroads

May 9   DJIA   16,550  Head & Shoulders Top Nasdaq ??   Careful !

May 12 DJIA   16,583  Market Really Wants to Run, but…..

May 13, DJIA  16,695  Bulls in Wings – Market Needs a Spark

May 14  DJIA  16, 715 What Could Spark a Surge or Plunge

May 15  DJIA  16,446   Market Needs Help from Economy, or…

May 16  DJIA  16,491  Bulls Blinked – But Don’t Get Too Bearish

May 19  DJIA   16,511  Stock Market Getting Ready for a Move ?

*Bloomberg

**Stock Trader’s Almanac

 

A Game-On Analysis, LLC publication

George  Brooks

“Investor’s first read – a daily 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.

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

Companies

Symbol Name Price Change % Volume
KBH KB Home 15.07 -0.01 -0.07 1,797,239
BZH Beazer Homes USA Inc. 13.30 0.36 2.78 1,005,694
TOL Toll Brothers Inc. 29.32 0.18 0.62 3,045,963
DHI D.R. Horton Inc. 27.28 -0.03 -0.11 4,258,152
PHM PulteGroup Inc. 18.31 -0.08 -0.44 4,023,126
OSSI Online Sales Strategies n/a n/a n/a 0

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