SUMMARY:
If this is the April surge I have been expecting, the market is tip toeing into it.
The Street is faced with a trade off – concern in some quarters for overvaluation in equities and uncertainty about Russia’s next move vs. expectations of a thaw in the impact severe weather has had on our economy and the age-old acceptance that there is nowhere else to invest one’s money.
The latter is mostly a concern for institutions, which have little choice but to buy stocks, unless they are sure the market will slide 6% to 10% and can buy them lower.
The S&P 500 is up 184% since this bull market started in early March 2009, and 9% in the last two months.
Stocks have been edging up since mid-March, which reflects hedging by institutions just in case we get an abrupt rebound in the economy.
Homebuilding stocks have begun to show some curb appeal, and would be a big beneficiary of the kind of rebirth of optimism an economic rebound would trigger.
To run higher from here, the Street must be able to see beyond the present to a point where global economies are gaining traction, where it’s OK to roll the dice, and where if they don’t, they will miss an opportunity to make a lot of money.
Without that, a sideways-to-down market is the best I can see, with the worst case being a mini-bear market, down 8% to 13% by fall.
TODAY:
Minor support is DJIA 16,520 (S&P 500: 1,881). Breaking that, calls for support at DJIA 16,471 (S&P 500: 1,876).
Upside: DJIA 16,597 (S&P 500: 1,894).
Nasdaq and Russell 2000 have been laggards in recent weeks, primarily because of a valuation bashing growth and opportunity stocks got from pundits and the financial press. However, there is plenty of room for valuations to reach ridiculous levels before this bull market is over.
This market is a teaser. Jump in and you may have to ride out a correction. Sit on the sidelines and you may have to pay up big-time if the market surges.
Why not take a partial position and have it both ways ? Not as much gain on the upside, yet less loss on the downside, but with the option to average down at lower prices.
Investor’s first read– Daily before the open
DJIA: 16,573
S&P 500: 1,890
Nasdaq Comp.:4,276
Russell 2000: 1,192
Thursday, Apri1 3, 2014, 8:55 a.m.
RUSSIA:
While it is unlikely Russia will invade Ukraine or any other border states with high concentration of Russian speaking citizens, the UNCERTAINTY will persist. This will be one of those “will they, or won’t they” deals that will have a varying impact on the market, a news whipsaw of sorts.
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ANOTHER 6% + CORRECTION BEFORE MAY – UNLIKELY
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.
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.
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TECHNICAL ANALYSIS EACH OF 30 DOW STOCKS:
At key junctures, I technically analyze each of the 30 Dow Jones industrials for a reasonable near-term downside and a more extreme downside, as well as a near-term upside potential. I note the price for each, add them up and divide by the DJIA divisor (0.1557159) and arrive what the DJIA would be if each of the 30 stocks hit my targets.
I did this calculation on March 14 with the DJIA at 16,108 and concluded a reasonable near-term downside for the DJIA was 15,900, a more severe near-term downside would be 15,625. The near-term upside would be 16,511.
The DJIA got down to 16,046 intraday and rebounded. This past Tuesday it surpassed my upside target.
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HOUSING STOCKS – Watch housing stocks for a clue to the direction of the economy.
As spring approaches, the Street will be dissecting every morsel of economic data in search of how much of the recent slowdown in the economy is attributable to severe weather.
A logical place to snoop is the housing industry and stocks since they should firm up before the industry stats confirm a rebound
PARTIAL LIST:
Beazer Homes(BZH) Friday: $20.80
PulteCorp(PHM) Friday: $19.69
Toll Brothers (TOL) Friday: $36.55
KB Homes(KBH) Friday: $17.85
DR Horton(DHI) Friday $22.25
CONCLUSION:
Very impressive bump up again yesterday, most likely in reaction to Fed chief Yellen’s comments about keeping interest rates down, as well investors seeking a neglected industry group. Add to that some short covering, and you have the ingredients for a nice rebound. All five except TOL rose, but volume was light.
All five have posted nice 5-day up-moves.
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THIS WEEK’s ECONOMIC REPORTS:
The economic calendar this features important employment, manufacturing, service industry reports, however these reports may still be adversely impacted by severe weather conditions.
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:
Chicago PMI (9:45): Index dropped in Mar. to 55.9 from 59.8 in Feb..
Dallas Fed Mfg. Svy.(10:30) Rose sharply in Mar. to 17.1 from 10.8 in Feb.
TUESDAY:
Motor Veh. Sales: Feb.’s month/month now at an annual rate of 15.3 million light motor vehicles vs. 15.2 in Jan.
ICSC Goldman Store Sales (7:45): Same store sales for Mar. 29 week up 3.6 pct. in spite of winter weather. Year/year distorted by late Easter.
PMI Mfg. Ix. (9:45): Final Mar. index was 55.5 unchanged from mid-month and down slightly from Feb.’s 57.5.
ISM Mfg. Ix. (10:00): Mar. index was 53.7 vs. 53.2 in Feb..
Construction Spend (10:00): Feb. rose 0.1 pct. after a drop of 0.2 pct in Jan..
Global Mfg. PMI (11:00): Index slipped to 52.4 in Mar. from 53.2 in Feb..
WEDNESDAY:
MBA Purchase Apps (7:00): Rose 1.0 pct. in the Mar. 28 week; Refi’s dropped 3.0 pct.
ADP Employment Report (8:15): New hires in March hit 191,000 slightly below estimates vs. 178 (revised) in Feb.
Factory Orders (10:00): Up 1.6 pct in Feb. vs. minus 0.7 pct Jan.. Excluding transportation rise was 0.7 pct. – good
THURSDAY:
Int’l Trade (8:30): Rose to $42.3 billion in Feb. from $39.3 billion in Jan..
Jobless Claims (8:30): Rose 16,000 in the week ending Mar. 29 to 326,000.
PMI Services Ix. (9:45):
ISM Non-Mfg. Ix. (10:00):
FRIDAY:
Employment Situation (8:30):
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RECENT POSTS:
Mar 19 DJIA 16,338 A Spring Break for the Economy ?
Mar 20 DJIA 16,222 Fed Reality – Market Up, or Down ?
Mar.21 DJIA 16,331 Yellen, Putin, Economic Freeze, Quadruple Witching Friday
Mar 24 DJIA 16,302 BIG Test for the Market Today
Mar 25 DJIA 16,276 Bull Top Unlikely – Why
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
A Game-On Analysis, LLC publication
George Brooks, Sole Member,Manager
“Investor’s first read – an edge before the open”
The writer of Investor’s first read, is 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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