Volatility/Whipsaw Returns to Trading

George Brooks |

Both the DJIA and S&P 500 closed at my support levels. We are once again seeing wild, sharp intraday swings in the major market indices. Today should be no exception with a good chance that the DJIA will jump to 14,508 (S&P 500:1,556) by 11:30. Support is now DJIA 14,399 (S&P 500: 1,544). Breaking that support would indicate enough weakness to cause a drop to DJIA 14,290 (S&P 500: 1,532.
This is like a busy subway station at rush hour – mobs of people trying to board a car, mobs getting off. There are profits to be taken, but institutional cash to be invested. Volatility will continue.
For the time being, there is a lid on the DJIA 14,533 (S&P 500: 1,561. Yesterday, I said the Bulls had to pick it up or a correction would occur. The prior 5 trading days were having trouble posting a high. This all can be a consolidation (pause) in an uptrend that will be forgotten next week if the market takes off. This is a “technical” whipsaw market, as compared to a “news” whipsaw market – both hazardous, short-term. Purchases are best staggered over days, rather than an “all-in” approach, sales likewise.
Investor’s first read – an edge before the open
DJIA: 14,421.49
S&P 500: 1,545.80
Nasdaq Comp.: 3,222.59
Russell 2000: 543.92
Friday March 22, 2013 (9:14 a. m.)
ONCE UPON A TIME: You know, 35 years ago this used to be a great business. Stocks went up for the right reason and down for the same.
Today, it is a casino with a good bit of the BIG money doing everything imaginable to stocks, except investing.
What I am saying here is, there are more “head-fakes” today. The rating criteria used by brokers, publishers and institutions is inconsistent – Buy, Strong Buy, Outperform, Trading Buy, Neutral, Market Outperform, Under Perform Sell Market Perform, Avoid mean different things depending on a firm’s use.
Only short sellers will complain about the “buys,” but it doesn’t take a “sell” to crush a stock, just a firm lowering its rating, These rating changes are a commission generator, but at whose expense ?
Stocks didn’t tank when a company missed analysts’ projections by a penny, worse yet tanked because the company’s quarter report only “beat” by a penny. Does it really matter over the longer term if the last quarter missed by a penny ? What if a big sale or earnings missed that quarter by a day or two ?
O.K., it is what it is. Timing is that much more tricky than it was 30 years ago before the institutions and options/futures took the field. This highlights the importance of using technical analysis as ONE OF ONE”S TOOLS for decision making.
Cyprus: Still unresolved ! The European Central Bank (ECB) served Cyprus with an ultimatum – it will cut off emergency funding beyond Monday, March 25, if its government fails to agree on the bailout terms required by the European Union (EU) and International Monetary Fund (IMF). In the interim, Emergency Liquidity Assistance (ELA) is provided by the Governing Council of the ECB.
Earlier this week, Cyprus’ parliament rejected a proposed levy on bank deposits that was designed to raise 5.8 Billion euros ($7.5 billion), required for Cyprus’ bailout. The solvency of Cypriot banks is in question without the recapitalization provided by the financial aid.
CONCLUSION: The seriousness of this crisis may escalate going into the weekend, but Europe solved bigger problems in the past. Earlier this week, sensationalists queried, could a levy on bank deposits occur in other countries, including the United States ? The idea caused a brief ripple ! Could the United States become another Greece ? Cyprus ? I seriously hope only a handful of people believe this kind of CRAP.
Apple (AAPL: $452.73)
AAPL is now in consolidation mode (resting). Resistance is now $454. Breaking that on the upside gives AAPL a shot at $467 before running into resistance. It held up nicely in a down market yesterday. It must hold up above $450 to avoid a drop to more important support at $442.
At less than 10 times earnings, (a 33% discount from the S&P 500’ 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 - $25.74) There is a persistent, but patient seller here using any buying to unload stock. There is a negative pattern here in that FB has closed at its daily low in 8 out of the last 10 days. I expect buyers to start nibbling a bit above $25, but big buying is needed here to reverse a slide that began Feb. 1. Resistance continues to creep down and is now $26.18.
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.
I am not long or short Facebook.
Groundhog indicted:
This morning, Bloomberg,com reported Butler County, Pa.’s prosecuting attorney, Michael Gmoser, is indicting groundhog Punxsutawney Phil for his Groundhog Day prediction of an early spring, when in fact the whole upper Midwest including Pennsylvania has been blanketed with record snows and low temperatures. Some responders are calling for Phil’s head. He might be a rodent, but Phil has one thing in common with humans, he’s fallible. Clearly, a wrong “call,” now and then doesn’t warrant such treatment (I hope).
ECONOMY:
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.
George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com
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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.

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Symbol Name Price Change % Volume
RPD Rapid7 Inc. 12.99 -0.48 -3.56 199,928

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