Don’t “Sell in May and Go Away” – the bull’s alive, stay and play.
We have seen the Street go from expecting a correction to this year’s 14.5% surge, to thinking one probably won’t happen.
This is all about supply and demand – the balance/imbalance of buying vs. selling.
No algorithms needed, it’s that simple.
Clearly, buying has exceeded selling by a wide margin, because institutional money managers see a bright green light and really have no other alternative to invest their client’s cash but in stocks.
Now that the perception of a need for a safe haven for money (bonds, gold) , is diminishing, more cash will become available for stocks.
However, this is not a time to be wearing blinders. The best of bull markets are interrupted by corrections. What’s more, new negatives which hit after a correction has run its course can turn it into a nasty decline.
Since this surge is driven by a preponderance of buying over selling, a correction will have to occur as a result of a more even balance between the two.
Currently, brief declines of one to three days are reversed abruptly by sharp rallies as buyers use any pullback as an opportunity to step in.
WHAT TO WATCH FOR:
A sign that sellers may be gaining the upper hand if only long enough to produce a 5% correction or sideways consolidation would be the inability of the market to rebound sharply following a brief pullback. If the bounce is less like that of a golf ball and more like an old softball, it’s time to be wary.
Friday’s selling was well absorbed, and the market looks like it wants to move ahead. This will be a big week for reports on the economy (see below). Unless we get an ugly surprise, these reports should have little impact.
Investor’s first read – an edge before the open
S&P 500: 1,633.70
Nasdaq Comp.: 3,436.58
Russell 2000: 975.16
Monday, May 13, 2013 (9:07 a.m.)
Apple (AAPL: $452,97)
Sellers who put a lid on AAPL Tuesday and Wednesday at $465 were there again Friday, this time a little lower ($460), which is now resistance. There should be some buying between $453 and $454. There is a chance it can drop to the $436 – $443 area. It has had a 21% move in less than a month. For some traders, that’s enough.
I am not long or short AAPL.
FACEBOOK (FB – $27.68)
FB tried to turn up last Thursday, but ran into a seller at $27.50. Friday was all down, indicating this correction can go lower to $26, or so.
I am not long or short Facebook.
SEQUESTER: Stay tuned, it is starting to hit. Erskin Bowles told CNBC Squawk Box recently sequester is a “stupid” way to handle deficit reduction.
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 to unemployment at the expense of 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.
We have a full docket of economic reports this week. For access to information including charts and graphics go to www.mam.econoday.com .
This week it highlights the JOLTS report, an acronym for Job Openings and Labor Turnover Survey, a Bureau of Labor Statistics (BLS) survey collected from employers each month encompassing employment, job openings, recruitment, hires and fires (separations). The data is used by the government for analyzing the state of the economy and planning. The guidance section of the FOMC is more and more indicator-based and JOLTS is o9ne of the indicators it tracks.
It tends to lag the Employment Situation report by one month.
There were 3,844 million jobs openings at the end of March, vs. 3,899 the month before, suggesting a continuing soft job market.
Retail Sales (8:30) Proj,: -0.3%
Business Inventories (10:00): Proj: +0.3%
NFIB Small Business Optimism Ix. 7:30): Proj. 90.5
ICSC-Goldman Store Sales (7:45)
Import/Export5 Prices (8:30): Import prices – 0.5% Export -0.1%
Producer Price Ix.(8:30) Proj. -0.7% ex food/energy +0.2%
Empire State Mfg. Ix. (8:30) Proj. 3.75
Industrial Production (9:15) Proj. -0.2%
Housing Market Ix. 10:00) Proj. 44
Consumer Price Ix. (8:30) Proj. -0.3% ex food/energy +0.2%
Housing Starts.(10:00) Proj. 969,000 rate Permits 945,000 rate
Jobless Claims (8:30) Proj. 330,000
Philadelphia Fed Svy(10:00) Proj. 2.2
Consumer Sentiment (9:55) 78.0
Leading (economic) Indicators (10:00) Proj. +0.3%
“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.