Swing Factor: Q1 Earnings, Spring Rebound

George Brooks  |


   Part of yesterday’s strength was short covering, but the real thrust came from institutions scrambling to pick up stocks at attractive prices before they ran up too much.

   Both the DJIA and S&P 500 struggled to break above the breakout levels I set before the open at 16,320 and 1,855, but eventually did so impressively. On the other hand, the Nasdaq Comp. blew right through its resistance (4,122), sending a message to the Street that the purge in growth/Biotech stocks was mostly over.

   While the major market averages are still off their April 4 highs, they have recouped close to two-thirds their loss, a sign of strength. Anything less than 50% suggests lack of momentum.

   After its Friday/Monday crunch, it was impressive the sharp sell off couldn’t follow through Tuesday. The market screeched to a halt without  major news as a catalyst.


   Q1 earnings are beginning to pour in. That can be the good news or the bad news, for the obvious reason. Either way, it spells UNCERTAINTY. Toss in the dire need for the economy to demonstrate the recent lull was weather related and  the Ukraine situation, and you take uncertainty to higher levels.

   We should be getting some answers in a week or two. Buyers may jump the gun.

   Watch any attempt to decline from here. If it lacks momentum, or bounces more like a golf ball than an old softball, the rebound is for real.

   Support is DJIA 16,378, S&P 500: 1,863. And Nasdaq Comp.: 4,167.

Resistance is DJIA 16,528, S&P 500: 1,883, and Nasdaq Comp.: 4,180

Investor’s first readDaily before the open

DJIA:  16,437                                                                           

S&P 500: 1,872

Nasdaq  Comp.: 4,153

Russell 2000: 1,1441,159

Thursday, Apri1  10, 2014      9:08 a.m.


   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.

 SELL in MAY, and Go Away ?

   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. More in coming days.

   I don’t think it can be taken as a “given.” 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.


     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, a reasonable risk based on present circumstances is DJIA 16,157, a more severe risk is 15,888 and the upside is 16,722. The latter would have to come after the current slide has turned the corner.

   Yesterday’s low in the DJIA (16,180) got close to the “reasonable” near-term risk level noted here.



   The Russia/Ukraine crisis will be with us for a long time. Over the weekend pro-Russian demonstrators seized administrative buildings in eastern Ukraine. Clashes can be expected between Ukrainians and pro-Russian  Ukrainians. While that in itself won’t impact global markets, a Russian incursion into eastern Ukraine to “save” pro-Russian citizens would.



   One of the Stock Trader’s Almanac’s great discoveries is the fact the stock market’s performance during thesix months between November 1 and May1 is far superior to the six months between May 1 and November 1.* The Almanac  refers to it as the “Best Six Months.”

   Over of the last 25 years, the “Best Six Months” has produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best year up 25.6% (1998 – 1999).

   Over the last 25 years,  there have been14 corrections ranging between 6% and 16%, but more than one correction of this size during the Best Six Months was rare.

   In 2002 there was a 6.2% correction in January and a 6.5% correction in March/April.  In 2003, there was a 7.0% correction in Nov. 2002/December 2002 and  a 12.9% correction in January/March of 2003.

   So far, the DJIA is ahead  6.0% since October 31, 2013 even with a 7% correction in the interim.  Another correction exceeding  6% is of course possible, but unlikely.

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   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.


 HOUSING STOCKS – A spring rebound in the economy can hardly occur without a renewal of interest in housing stocks.  While this group had a brief run last week,  Friday’s sell off stopped it in its tracks. Looks like we must get deeper into April  for enough confirmation  of a spring rebound from the severe winter weather  to get a read on how much of an improvement we can expect.


Beazer Homes  (BZH)   Friday: $20.12

PulteCorp ($PHM) Friday: $19.15

Toll Brothers (TOL) Friday: $35.94

KB Homes  (KBH) Friday: $17.14

DR Horton  (DHI) Friday $21.94


   So far so good. These stocks posted modest gains on a big day yesterday. What’s important is, they rebounded from their lows for the day, tracing out an increasingly positive pattern. Worth noting, the yield on the 10-year note has been dropping.



The economic calendar this  week is light with the highlight being the FOMC report.

For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.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.”


Consumer Credit (3:00):Rose sharply to $16.5 billion due to strength in non-revolving credit (car and student loans) rather than credit card use.


NFIB Small Business Ix. (7:30): Rose 2 points to 93.4 in Mar., reversing the 2.7 point drop in Feb. reflecting optimism for future sales and inventory building.

ICSC Goldman Store Sales(7:45):Same store sales jumped 1.5% in the Apr. 5 week vs. the prior week. 

JOLTS-Job Openings Labor Turnover (10:00): At the end of Feb., there were 4.173 million job openings vs. 3.874 million in Jan.. The “hires’ rate was 3.3% and “separations” rate was 3.2%.


MBA Purchase Apps (7:00): Rose 3.0 pct. in the Apr.  3 week for the third straight gain.

Wholesale Trade (10:00): February was up 0.5 pct. vs. rise of 0.8 pct. (revised up)

FOMC Minutes (2:00 p.m.):


Jobless Claims (8:30):

Import/Export Prices (8:30)


PPI-FD – inflation report (8:30)

Consumer Sentiment(9:55):



Mar 26 DJIA  16,367 Bulls Must Beat Key Resistance Level

Mar 27 DJIA  16,268 Rally Failures = Lower Prices – Opportunity ! 

Mar 28 DJIA  16,264  April/May Surprise Surge ?

Mar 31 DJIA  16,323  CONFIDENCE Calls the Shot – April Opportunity ?

Apr 1   DJIA   16, 457 Rounding Top or Base for Big Upmove ?

Apr 2   DJIA   16,532  Market Wants to Run

Apr 3   DJIA   16,573  What the Market Really Needs Now is……

Apr 4   DJIA   16,572   New Highs Need to Hold Today

Apr 7   DJIA   16,412  Sell Off to Create Trader’s Buy

Apr 8   DJIA   16, 245 Buying Opportunity Possible Early Monday

*Stock Trader’s Almanac

A Game-On Analysis, LLC publication

George  Brooks

“Investor’s first read – an 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. Brooks may buy or sell stocks referred to herein.












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