The last time we had intraday volatility like this, it was resolved on the upside. The logic for this phenom to repeat would be that there are investors who have quick and sizable profits, but at the same time, there are institutional investors buying aggressively, since they see a more stable and brighter future a year or so out when the economy has a chance to really hum.
A correction would have to involve profit taking and buyers who concurrently stepped back to wait for lower prices. This is a tug of war and the bulls have the stronger team.
Strong closes three out of the last four days have boosted the bulls’ case. A breakout on the upside above DJIA 14,570 (S&P 500: 1,566) has a chance to run up sharply, possibly as much as 250 – 300 Dow points.
Currently, the pattern is bullish, however a drop below DJIA 14,400 (S&P 500: 1,545) would do near-term damage.
The DJIA ands S&P 500 traced out a similar pattern in mid February, looking like a breakout was imminent only to get jolted over the six days before the end of February. The market took off in early March after several scary days.
Support is DJIA 14,465 (S&P 500: 1,554).
Investor’s first read – an edge before the open
S&P 500: 1,562.85
Nasdaq Comp.: 3,256.52
Russell 2000: 950.24
Thursday, March 28, 2013 (9:12 a. m.)
CASE for CURRENT LEVEL OF STOCK PRICES:
It is important to note (again) that the stock market has rebounded to the level where the bear market of 2007-2009 began. The difference now vs. then is we are not currently facing the horrendous string of adversities here and abroad we faced then. Real estate is recovering, corporations are sitting on huge stashes of cash, which must soon be spent, employment is improving, and there seems to be a greater willingness in Washington to address problems. Europe is on the mend.
We are not engaged in a full scale war, BUT I wouldn’t rule out U.S. intervention in the supply of aid to Syria from Iran.
SEQUESTER (No, it didn’t go away):
This week will feature some key economic reports (see below). At some point, the question will be raised about the sequester’s impact on the economy, notwithstanding the uncertainty it brings to persons at risk, directly and indirectly.
It is too early to expect anything to show up in the indicators, and it may never be a major issue if our economic recovery gains traction.
It is one of those potential negatives one has to consider along with other ingredients that lead to a decision to buy or sell.
Employers (government or private) may opt to furlough employees without pay, cut back on hours rather than release them putting them on unemployment at the expense the government. Even so, several weeks without pay has an impact on the economy.
This is one of those uncertainties that, along with a few others, can trigger a consolidation or pullback in the stock market.
Apple (AAPL: $452.08)
Monday, AAPL hit $469, $2 above my resistance where it attracted a big seller. It proceeded to plunge Tuesday and Wednesday on very light volume, almost as if buyers vanished. The result - AAPL penetrated its near-term support at $461, as well as the next support level at $456. The Street blamed concerns about its product refresh cycle, criticism by the Chinese government and its legal battles with Samsung. Yesterday, I wrote that odds favor a consolidation (sideways-to-down) ranging between $464 and $456, however AAPL’s pattern is now a weak neutral, down from positive, and I will have to alter that trading range. The lack of buyers this week is particularly disturbing. Yesterday’s $9 drop may attract some interest, but risk is now $442 - $439.
At less than 10 times earnings, (a 33% discount from the S&P 500’s P/E), customer service second to none, and down 35% from its September $705 high, this industry leader clearly should be attracting more buying. I sense there is some serious money earmarked for AAPL, it is just waiting for a greener light on earnings growth going forward. Currently, the Street appears to expect a big increase in AAPL’s dividend, possibly by as much as 50%. While that would increase its interest as an investment to a wider range of investors, just be aware that dividends are taxed and the price of a stock is reduced by the amount of the quarterly dividend on the ex-dividend day. If the stock is rising at the time, it will go unnoticed, but this is not free money.
I am not long or short AAPL.
FACEBOOK (FB - $26.09) Two days ago, FB got down to the level it hit on Dec. 28, prior to a sharp 28% rally that peaked in a double top in mid-January, when it got hit by steady selling. The source ? Possibly IPO investors whose shares came out of lock-up, the latest being 777 million shares freed up in mid-November. .
There is a difference of opinion about FB’s future, and I doubt we will know who is right for a year or two.
Between Aug. and Dec. last year, a trading range between$18 and $24 developed. That should provide support for FB and a buying opportunity. That’s where a three month tug of war took place between the believers and non-believers.
Yesterday’s pop reversed a 12-day slide. Support is now $25, resistance is $27.40.
I am not long or short Facebook.
This will be a heavy week for economic reports.
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)
Chicago PMI (9:45)
Kansas City Fed. Mfg. Ix. (11:00)
Personal Income/Outlays (8:30)
Consumer Sentiment (9:55)
“Investor’s first read – an edge before the open”
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