Stock Market Needs Help From Fed and Economy
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 read– Daily 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”
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.
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