TODAY:
We have had sharp corrections in the market this year, the problem is they occurred within one day’s trading (intraday), not a five to eight-day affair that gives buyers a chance to buy on pullbacks.
Today will start off on the downside. Like so many days this year, anxious buyers may be quick to step in and run stocks up again.
However, expectations of disappointing Q1 earnings may be enough of a new negative to keep investors on the sidelines until they get a better handle on the earnings. The dangers are obvious, the Street punishes the stock if it doesn’t ”beat” projections.
So far, aggressive buying for fear of missing the market has trumped all fears about earnings, sequester, and North Korea.
A correction today could reach DJIA 14,732 (S&P 500: 1,577).
UNDERSTANDING INVESTOR ANGST IN A RISING MARKET:
To understand what is happening to stock prices, it would help to imagine you are a money manager under pressure from clients and your employer to perform. Failure could cost your firm the account, and you your job.
So far this year, the rise in the stock market has far exceeded many of the Street’s projections at year-end, leaving many investors currently under-invested.
Making matters worse, the market’s rise has offered little chance to buy-in on a pullback; it’s been straight up.
Investor’s first read – an edge before the open
DJIA: 14,865.14
S&P 500: 1,593.37
Nasdaq Comp.: 3,300.16
Russell 2000: 947.05
Friday, April 12, 2013 (9:14 a. m.)
Pressure and frustration mount with each surge. Adding to the angst, are press reports of a new all-time highs. While the gain may only be fractional, the headlines lead investors to conclude the market is running away without them.
Investors are forced to pay-up for stocks they only recently targeted for purchase at lower levels.
Momentum builds, driven by panicky buying by investors who are hoping it will continue so the shares they bought become profitable, even though they paid higher and higher prices to own them.
What if the market just keeps going up ?
Normal human behavior overwhelms the investor who “can’t stand it anymore” and forces him to go all-in. This is the reverse of what happens in the late stages of a bear market, when panic overwhelms the investor who “can’t stand it anymore, and sells out, very close to the bottom.
Currently, there is just too much money that must be invested by institutions. It will be put to work as prices rise, and especially if they decline.
SEQUESTER: I’m keeping this posted so you don’t forget the market may begin to worry about its impact.
At some point, the question will be raised about the sequester’s impact on the economy, notwithstanding the uncertainty it brings to persons at risk, directly and indirectly.
It is too early to expect anything to show up in the indicators, and it may never be a major issue if our economic recovery gains traction.
It is one of those potential negatives one has to consider along with other ingredients that lead to a decision to buy or sell.
Employers (government or private) may opt to furlough employees without pay, cut back on hours rather than release them to unemployment at the expense of the government. Even so, several weeks without pay has an impact on the economy.
This is one of those uncertainties that, along with a few others, can trigger a consolidation or pullback in the stock market.
Apple (AAPL: $434.33)
AAPL broke out above resistance at $428 yesterday, turning its pattern from a weak positive into a positive.
During the day, it hit both support at $432, and resistance is $437. The stock is trading within a triangular pattern. A break above $436. 50 could lead to a move to $445. A break below $433 would indicate a move down to $429.
AAPL held above $419 on Mar 4 and again on April 5, which is beginning to look like a “double bottom,” and the final turning point for this battered leader.
I am not long or short AAPL.
FACEBOOK (FB – $27.57)
With the help of a strong market, FB broke out of its consolidation Wednesday on a nice increase in volume. Support now moves up to $27.80. Resistance is $28. That’s where it ran into a wall five days ago. A break above $28 paves the way for a move into the low 30s.
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.
ECONOMY:
This will be a 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.
FRIDAY:
Producer Price Ix. (8:30)
Retail Sales (8:30)
Consumer Sentiment (9:55)
Business Inventories (10:00)
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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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