Q4 earningswill be reported in coming weeks, along with the dreaded changes in broker ratings and estimates for coming quarters. Expect sharp moves both ways.
I have warned of a correction exceeding 5% in Q1, indicating odds favored it starting in January.
That still may happen, though some of the selling this year is by investors opting to put profits in the 2014 tax year.
As we have seen, there is selective strength, it’s just not across the board. Trading has been sloppy and the market lacks leadership. Even so, pockets of strength are there, which shouldn’t be if the BIG money is selling big-time.
TODAY:
Friday, I wrote that the key to the upside will be how well Friday’s rally held its gain, noting that there was no room for a rally failure where the market gives back all of its gain for the day.
The result was the DJIA’s rally fell short, but the S&P 500, Nasdaq and Russell 2000 closed at their high for the day.
There is some resistance for the DJIA at 16,473, but that can be penetrated with the next resistance encountered at 16,518. The S&P 500 should hit overhead supply at 1,849.
Two things could help the bears. One, disappointing earnings for Q4. Two, if the 10-year Treasury rises well past 3.00%, which is unlikely based on its recent drop.
Obviously, the bulls would gain from better-than-expected earnings and hopes that the Fed will hold off on its next taper in light of Fridays poor jobs report, which may have been distorted and subject to upward revision.
Investor’s first read– a daily edge before the open
DJIA: 16,437
S&P 500: 1,842
Nasdaq Comp. 4,174
Russell 2000: 1,164
Monday, Jan. 13, 2014 9:05 a.m.
NOTE: New additions to Technical Analysis Alert List (See below)
DO NOT MISUNDERSTAND MY POSITION HERE. I am still bullish, I just have an eerie feeling about the fact that concerns for the economy, Europe, China, Congress, the Mid-East, and a Fed taper are no longer front and center, so how much of those negatives have already been discounted by 2013’s big gain ?
The market is going to get whacked, if only for several weeks; it is a question of when. I think it’s in Q1, and January is a good bet. Beyond that, it will be volatile with a number of great buying opportunities.
We had 11 corrections of 5% or more last year with two exceeding 15%.* While 5% corrections are unnerving, they are generally over in the matter of a week or two. It’s the ones that exceed 5% that are like a sharp poke in the gut.
The greater than 5% ones are news-driven or technical. News driven start with a catalyst, an incident that is going to hang around unresolved for a while.
The technical ones reflect a momentary lapse in buying. Like a morning fog, they arrive, then suddenly lift.
A modest technical correction can become a greater one, if the market is hit with bad news as it is about to turn upward. That’s when a 5 percenter becomes an 8-pecenter or worse.
STRATEGY:
One strategy for investors to employ under these conditions would be to buy a partial position in a stock they want to own, but feel it could be bought at a lower price after a market correction. If it goes higher, they are still making money. If it goes lower, they can average their cost.
Likewise, if an investor feels a position is vulnerable but believes it could still go higher, he can sell off part of the position. If it goes higher, sell the rest. If it goes lower, the higher sale averages out the shares sold at a lower price.
As simplistic as this strategy is, it is easy to overlook under pressure.
I AM GOING TO REPEAT THE FOLLOWING TO MAINTAIN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.
Best Six Months to own stocks:
Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.
The Almanac’s “Best Six” goes back to 1950. The six months is a snapshot between November and May. Many major market advances often start before November, but the point made here is the period between fall and May is where the action is.
Is this going to be another “BEST six months to own stocks ?
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*
With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).
THE DANGER: over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.
TIMING – OPPORTUNITY STOCKS
New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns. All on the drawing board.
The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly.
Apple (AAPL: $532.94) Positive, borderline neutral
Needs a big buyer to reverse its 11-day slump. Odds favor a high volume one-day reversal above $524. Stock keeps breaking reasonable support levels suggesting a persistent seller and the possibility something has changed fundamentally. This weakness goes counter to sharp surges in November and December.
Facebook (FB:$57.94) Positive
Breakout failed on Thursday, but stock stabilized Friday. Support is $57, resistance $58.50.
IBM (IBM:$187.28) Positive
Picked up a seller. Some support at $185.90. Breaking that, IBM can drop to $183 – $184. Stock had big 17-day run to $190. Correction not out of line.
Pulte Homes (PHM: $20.16) Positive
Attacking resistance in the $20 area with a vengeance, this time on increased volume. Maybe it was the drop in the 10-year treasury, don’t know. Support is $20.10
First Solar (FSLR:$51.97) Negative
No change. Goldman Sachs really skewered this one when it downgraded it to a sell from a buy. Breaking $51, stock can drop to the $46 – $48 area, though there is some support at $51.50.
Nike (NKE:$76.92) Positive but close to turning negative.
Selling pressure continues, but volume spike late Wednesday indicates NKE is attracting some interest.. Nevertheless, Wednesday’s action for the rest of the day was ugly, Thursday, as well. Friday offered hope with late day buying. Needs a high volume push across $78 to turn tables.
Hewlett-Packard (HPQ:$27.70) Positive.
Good buying at open Thursday and Friday afternoon improves pattern.
but no Support $27.50.
Polaris Inds. (PII:$143.66) Positive
Attempt to break out and run ran into sellers third day in a row, suggesting consolidation may continue. Could drop to $141.70.
Amazon (AMZN: $397.66) Positive
After three good days in a row AMZN hit a 52-week new high at $406.89, but sellers stepped in. Support is $396. Resistance is $402.
Pandora Media (P:$33.47) Positive. Up 15% this week.
Stock is responding to positive “listener” data news for 2013 year. Support is now $33.10, but this is a very volatile and irrational stock. Could go to $36 or $30 in one day.
NEW ! NEW ! NEW ! – Technical Analysis ALERT list
The following is a “Technical” alert list, stocks that have indicated an improved technical pattern. I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their technical pattern is improving. Normal intraday fluctuations can offer a lower price than that listed here. Positive patterns can be interrupted by corrections.
Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop cell in line with your tolerance for risk
Align Technologies (ALGN:$60.71) Listed here (12/23) at $57.03
Gentex (GNTX: $33.33) Listed here (12/23) at $32.64. Now correcting up-move ($29 – $34) three weeks ago Can drop to $31.35
Netease (NTES: $81.77) Listed here (12/23) at $74.51. Reversed after hitting 52-week high $84.35.
Spirit Airlines (SAVE: $47.92) Listed here (12/23) at $46.06.
Valeant Pharm (VRX: $133.50)Listed here (12/23) at $112
Dycom (DY:$27.91) Listed here (12/23) at $28.05
Cognex (CGNX: $37.05)Listed here (12/23) at $36.09. Correcting after 6-point run up, Support $35.60.
Salex Pharm. (SLXP: $93.62) Listed here (12/23) at $87.61
Natus Medical (BABY:$24.43) Listed here (12/24) at $22.80
Sierra Wireless (SWIR:$23.27) Listed (12/24) at $22.33
NEW ADDITIONS: (note: Not Buy recommendations, just positive technical patterns requiring additional research.
Cardtronics (CATM: $43.88)
RPM Int’l ($43.09)
Silicom Ltd (SILC:$46.44)
Bitauto (BITA: $36.44)
Avery (AVY: $50.88)
Alexion Pharm. (ALXN: $135.21)
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
THE ECONOMY:
While the number of economic reports is light, there are several key ones, especially those for housing.
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.”
MONDAY:
Treasury Budget (2:00 p.m.) Deficit dropped to $135 bi.l in Nov vs $172 bil. year ago. Two months into the new FY, the deficit is down 22%
TUESDAY:
NFIB Small Business Optimism Ix. (7:30) Proj: Index Dec 93.5Nov.
ICSC Goldman Store Sales (7:45) Proj: NA
Retail Sales (8:30) Proj: Dec 0.0 pct. vs. +0.7 pct Nov.
Import/Export Prices (8:30) Proj: Dec +0.4 pct. vs. -0.6 pct Nov.
Business Inventories (10:00) Proj:Nov. +0.3 pct
WEDNESDAY;
Producer Price Ix. (8:30) Proj: Dec +0.4 pct. ; ex-food and energy +0.1 pct.
Empire State Mfg. Svy (8:30) Proj: Index Jan. 3.30
Beige Book (2:00)
THURSDAY:
Jobless Claims (8:30) Proj: For week 1/11/14 327,000 vs. 330,000 (1/4)
Consumer Price Ix. (8:30) Proj: Dec +0.3 pct vs. Nov. flat; ex food/engy +0.1 pct.
Philly Fed Svy (10:00) Proj: Jan. 8.7 vs, 7.0 Dec
Housing Mkt. Ix. (10:00) Proj: Index Jan. 57.5 vs. 58.0 Dec
FRIDAY:
Housing Starts (8:30) Proj: Dec 0.985 million-unit rate vs. 1.091 mil.-unit rate Nov
Industrial Production (9:15) Proj:Dec + 0.3 pct.
Consumer Sentiment (9:55) Proj: Jan index 83.5 vs. 82.5 Dec.
JOLTS (10:00) – Job Opening Labor Turnover Svy Proj: Nov. 3.930 million vs. 3.925 mil. Oct.
RECENT POSTS – 2013
Dec 13 DJIA15,739 “Best Six Months Ahead ? Not Without an Ugly Correction in
the Interim”
Dec 16 DJIA January 30 Taper ? If So, Fed Needs to Schedule a Press
Conference – a Tip off”
Dec 17 DJIA 15,755 Fed to Taper January 30 ? It Should, Here’s Why
Dec 19 DJIA 15,875 Taper Today=Sell Off Followed by a rally – No
No Taper=Rally Followed by a sell off”
Dec 23, DJIA 16,221 New Feature : “Technical “Alert” List.”
Dec 24 DJIA 16,294 Buyer Panic ? Or Seller Ambush ?
Dec 26 DJIA 16,357 Year End Opportunities
Dec 27 DJIA 16,479 January 2014 Profit-Taking Will Hit Certain Stocks
D00000000000000000000000000000000000000000000000000000000000000ec 30 DJIA 16,478 Be Prepared to Take Advantage of 5% January Correction
Dec 31 DJIA16,504 Forecast: Get Ready for a Wild Ride !
2014
Jan 2 DJIA 16,504 A Raging Bull, but Corrections Offer Opportunities
Jan 3 DJIA 16,441 More Downside in the Market ?
Jan 6 DJIA 16,469 Correction or New Up-Leg ?
Jan 7 DJIA 16,425 Market at Key Crossroad
Jan 8 DJIA 16,530 Market at Key Crossroad
Jan 9 DJIA 16,462 Bull/Bear Battle Continues – Toss Up, but…
Jan 10 DJIA 16,444 Stocks: Sharp Run Uo, Or Down in January ?…
* InvesTech Research, James Stack, Editor(www.investech.com – 406/862-7777). This is clearly one of the nation’s best. Get a sample issue and see for yourself.
George Brooks
“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. Brooks may buy or sell stocks referred to herein.
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