Surge in Stocks - Is Economy Next ?

George Brooks |

TODAY:

Q1 earnings for the S&P 500 are expected to come in at a plus 0.7%, hardly anything to get excited about. But the market is hanging tough, someone must not care about Q1 or Q2 earnings. The Street may be looking ahead to better quarters and buying.

   Pre-market futures trading indicates a positive open. The key today will be if that rise can hold, i.e. no room for a rally failure.

   Resistance starts: DJIA: 16,598, S&P 500: 1,888, Nasdaq Comp.: 4,158

Minor support is DJIA: 16,448, S&P 500: 1,866, Nasdaq Comp.: 4,109.  

 WHAT COULD GO WRONG ? RUSSIA

   I hold to my belief that the market will surge in April well into May before a correction sets in, but a spring rebound in the economy out of  a weather-beaten economy is a must to sustain a rise.

   The stock market has consistently hit a wall in May, primarily since it marks the end of the Best Six Months for owning stocks.*

HOUSING:

   Yesterday’s report of a 14,4% plunge in March New Home sales crushed housing stocks, which were on the ropes in the first place. OK, March activity may be a bit early for a read on this industry where buyers have been turned off by low inventories, higher prices and slightly higher mortgage rates.

   If new or existing home buyers think these rates are high, they should look back in time to 6%, 8% and 10% rates. The reality is rates are going up, and so are home prices. At some point, home buyers will have to buy, or the market may be out of reach indefinitely.

   This economy needs a stronger housing market, since so many other industries rely on it. Unless there is a pick up, the intensity of the economic expansion is in question. The Street seems to believe there is hope for housing stocks. Someone stepped in to catch a lot of stock for sale yesterday, closing stocks on the list below close to their highs for the day. That could be short covering, or maybe better news is in the offing.

   Presently, the market will be marching to Q1 earnings reports and resulting revisions in guidance and estimated for Q2 and beyond – white knuckle time for some.

TECH STOCKS:

   That Apple (AAPL: $524.79): Blowout earnings will open AAPL well above projected resistance and it looks like the same is true for Facebook (FB: $61.03) which now has a shot at  $70. Amazon (AMZN: $324.58), Amgen (AMGN: $113.31), Netflix (NFLX: $353.50) failed to reach projected resistance. Google (GOOG: $526.94) is struggling here, but may gain support from upbeat earnings at AAPL and FB. Yesterday marked the second time down for tech stocks in general and they must be watched closely for a rebound. Ideally, that would come within a week at lower prices, but the hot money may want to jump the gun and buy. Generally, this group has been overvalued (depends on who you ask), but looking out a year or two, fast growers may look good to longer term investors.

Investor’s first readDaily before the open

DJIA:  16,501                                                                           

S&P 500: 1,875

Nasdaq  Comp.:4,126

Russell 2000:  1,147

Thursday, Apri1  24, 2014      9:10 a.m.

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NEW  Study:  TECHNICAL ANALYSIS OF THE 30 DOW  STOCKS

     At key junctures, I technically analyze each of the 30 Dow stocks seeking a reasonable near-term downside risk, a more severe risk and an upside potential for each, then use the Dow “divisor” to convert that data back into the DJIA.

    Currently (4/17), a reasonable risk based on present circumstances is DJIA 16,265, a more severe risk is 15,974 and the upside is 16,648.      

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SELL in MAY, and Go Away?

NONSENSE! SELL IN MAY and STAY for one or more trading opportunities before November 1.

   You will soon read about that seasonal phenom in the press and newsletters. 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, it 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.

   Studies like this have to have a cut-off date, but are really intended to be accepted with an open mind, i.e. as May 1 approaches, move closer to the exit mentally, and be ready to lock in some profits and raise some cash.

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   RUSSIA/UKRAINE

   Russia’s annexation of Crimea was only the first step in President Putin’s power grab. Undoubtedly, he plans to stir additional unrest in sections of Ukraine where Russian speaking people are in great numbers. A military response by Ukraine would give him reason to invade Ukraine to protect pro-Russians and that would have an impact on global markets, which are vulnerable to begin with.

   One of the factors that turns a normal market correction of 3% to 5% into a much bigger correction (5% to 12%) is new negatives that hit the market when it is about to rebound from the 5% correction. A sharp escalation in the Russia/Ukraine situation could be one of those  factors. Yesterday, the U.S. announced it was sending 600 soldiers to Poland as a sign of support.

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EUROPEAN ECONOMIES:

   Manufacturing output, new orders and exports are up for the eighth consecutive month, suggesting its recovery is real, though not yet robust. Our economy has scratched and clawed its way out of a horrendous recession without help from Europe. Obviously, a recovery there stands to accelerate the pace of  our recovery here.

   The IMF released its latest global economic forecast as it meets in Washington this week. It sets global economic growth at 3.6% in 2014 and 3.9% for 2015, up from 3% in 2013.

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 HOUSING STOCKS – A spring rebound in the economy can hardly occur without a renewal of interest in housing stocks. A big jump in  mortgage apps and refi’s for the April 11 week suggested a rebound may be in the offing, as did a 2.8% jump in March Housing Starts. Those hopes were dashed Wednesday by a 3.0% drop in apps for the April 18 week and a 4.0% drop in refi’s. Worse yet, New Home sales plunged 14.5pct. in Mar. to an annual rate of 384,000. The median price rose 11.2% to $290,000. Year/year new home prices  are up 12.6% compared to  a decline of 13.3% in sales.

   But all except DHI rebounded to recoup most of their loss for the day. Could be short covering on the bad news. Volume was relatively heavy. 

PARTIAL LIST: 

Beazer Homes(BZH)  Friday: $18.73 off 26% from its 52-week high

PulteCorp(PHM) Friday: $18.57    off 24.1%  from its 52-week high

Toll Brothers (TOL) Friday: $33.66  off 15.7% from its 52-week high

KB Homes(KBH) Friday: $16.34 off 35% from its 52-week high

DR Horton(DHI) Friday $21.35 off 22.2% from its 52-week high

CONCLUSION:  The  economy needs strength in housing to rebound significantly, since so many products key on decisions to buy a house.   

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THIS WEEK’s ECONOMIC REPORTS:

   Four housing market reports are scheduled for release this week two Tuesday and two Wednesday (See below). The Mortgage Bankers Purchase Apps at 7 o’clock Wednesday morning is the most time-sensitive and  a possible alert to the direction of home buyer interest.

   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.”

MONDAY:

Chicago Fed. Nat’l Activity Ix. (8:30): Index for Mar. was 0.20 vs. 0.53 for Feb.

Leading Indicators (10:00): Up sharply in Mar. With better-than-expected increase of 0.8 pct. vs upwardly revised increase of 0.5 pct. in Feb. and 0.2 pct in Jan.

TUESDAY:

ICSC-Goldman Store Sales (7:45): Up 0.4 pct. for the Apr. 17 week vs. a drop of 0.3 pct the prior week.

FHFA House Price Ix.(9:00): Increased 0.6 pct. in Feb. vs. a gain of 0.3 pct. in Jan..

Existing Home Sales (10:00): Still no activity, down 0.2 pct. in Mar. vs. a drop of 0.4 pct in  Feb. Year/year were down 7.5 Pct.

Richmond Fed Mfg. Ix. (10:00): Feb. index up to7 vs. minus 7 in Jan. and minus 6 in Dec..

MBA Purchase Apps (7:00): Apps declined 3.0% in the Apr. 18 week, refi’s dropped 4.0%.

PMI Mfg. Ix. (9:45): Mar. was 55.4 vs. 55.5 in Feb., but New Orders jumped to 58.9.

New Home Sales (10:00): Plunged 14.5pct. in Mar. to an annual rate of 384,000. The median price rose 11.2% to $290,000. Year/year new home prices are up 12.6% compared to  a decline of 13.3% in sales.

THURSDAY:

Jobless Claims (8:30): Up 24,000 to 329,000 for the Apr.18 week.

Durable Goods (8:30):  Up 2.6% in Mar. vs. a gain  of 2.1% in Feb..

Kansas City Fed Mfg. Ix.(11:00):

FRIDAY:

PMI Services Flash (9:45):

Consumer Sentiment (9:55):

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RECENT POSTS:

Apr 8   DJIA   16, 245 Buying Opportunity Possible Early Monday

Apr 9   DJIA   16,256  April Opportunity Looms

Apr 10 DJIA   16,437  Swing Factor: Q1 Earnings, Spring Rebound

Apr 11 DJIA   16,170  Computer Selling = Scary Plunge = Opportunity

Apr 14 DJIA   16,026 Spring Surge Still in the Cards

Apr 15 DJIA   16,173  Selling Climax Still to Come ?

Apr 16 DJIA   16,262  Reversal – the Start of the Spring Surge ?

Apr 17 DJIA   16,424   Beware – Earnings Distortion

Apr 21 DJIA   16,408  A Very Important Week for Stocks

Apr 22 DJIA   16,449  Stock Market – Coiling Spring ?

Apr 23 DJIA   16,514  Today – a Test for the Bulls

*Stock Trader’s Almanac

A Game-On Analysis, LLC publication

George  Brooks

“Investor’s first read – an 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

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