Institutional buying appears unstoppable, or it did until yesterday. Prior to the open yesterday, the charts of all major market averages showed stocks “breaking out” on the upside to which I wrote, “Everything looks great. Careful.”
The shock-effect of the decline wasn’t so much that the DJIA closed down 108 points, it was that the decline came so abruptly at a time a rise in the stock market looked like a sure thing. It looked like odds were 10 to 1 for a sharp move up.
It this business, there always several balls up in the air, any one of which can come down unexpectedly to impact the market.
This time, it was the sudden realization that at some point the Fed will ease up on its purchases of assets to reduce the risk of inflation and a sudden plunge in long-term bond prices.
Actually, all the minutes of the Fed’s January 29-30 meeting implied was a slowing in the pace of asset purchases, not the termination.
Perhaps the adverse impact of sequestration on March 1, is becoming more real as the deadline approaches. Yesterday, Defense Secretary, Leon Panetta, informed Congress of its plans to furlough 800,000 civilian Pentagon employees if sequestration kicks in. The Federal Aviation
Administration indicated it would have to cut $483 million from key operations, which stands to affect air traffic control and cause longer delays.
Yesterday’s decline in the DJIA was accompanied by larger drops percentage-wise in the S&P 500, Nasdaq Comp., and Russell 2000. It’s a slight crack in the foundation of an undeterred rally since year-end, a reminder that this can be a two-way street.
Pre-market trading is mixed. Eventually, the Fed will back off from its asset purchases, everyone knows that, and Washington will do something about sequestration, before or in the months after, March 1.
The steep intraday volatility in recent weeks suggests a difference of opinion about the justification for the current level of stock prices. That has to be respected, meaning DON’T GET CARELESS !
Bull markets continue in a state of vulnerability, until something triggers a correction. What triggers it one time, may have little effect another time.
Minor corrections become bigger ones when new negatives surface at the moment the minor correction is ready to reverse.
Resistance starts at DJIA 13,988 (S&P 500: 1,518). Support is DJIA 13,858 (S&P 500: 1,502).
ON A POSITIVE NOTE:
While the Street does not yet seem concerned about sequestration, good news out of Washington about heading off its worst impact would be unexpected and prompt a sharp rally. Based on rhetoric to-date, that doesn’t seem likely, and that is a good reason to be prepared for its possibility.
Investor’s first read – an edge before the open
S&P 500: 1,511.95
Nasdaq Comp.: 3,164.40
Russell 2000: 913.50
Thursday, February 21, 2013 (9:13a.m.)
APPLE (AAPL: $448.85)
APPL’s most recent attempt to stabilize was thrown into jeopardy yesterday when persistent selling caused it to break down through support at $455. It is now testing two levels that produced enough buying in late January at $435 and early February at $442 to reverse its downtrend, albeit temporarily.
This has turned ugly. Failure to hold above $442 would suggest $400 is at risk. Resistance is $453. Down 36% from its September high, AAPL is obviously becoming attractive enough to lure buyers off the sidelines. The problem is the selling is just too steady, and at lower and lower prices to stop its slide.
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB - $28.46) FB must move across $29.50 on heavy volume to reverse its negative pattern. It got to $29.08 late Tuesday and $29.05 yesterday, but closed near the low for the day. Resistance in $28.70, Support 28.10.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help target a bottom as with FB. Comments are based on technical analysis only.
This will be another light 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)
Consumer Price Ix.(8:30)
PMI Mfg. Ix (8:58)
Existing Home Sales (10:00)
Phila. Fed. Svy (10:00)
Leading Indicators (10:00)
“Investor’s first read – an edge before the open”
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