Investor's first read - an edge before the open
S&P 500: 1,495.71
Nasdaq Comp.: 3,131.16
Russell 2000: 899.28
Tuesday, February 5, 2013 (9:16 a.m.)
How's that for a couple days that don't make sense ? DJIA up 149 Friday, down129 yesterday
Looks like the BIG money fed the pigeons yesterday after Friday's panicky run.
But wait, we are looking at a strong open today, up 65 to 95 points.
What does all this mean ?
Institutions and the individual investor are scrambling to buy stocks now that they are convinced it is safe to do so.
Others are taking profits, having bought-in at lower prices when uncertainty and risk dominated headlines.
This is characteristic of a maturing bull market, which has yet to enter a wild speculative phase where blue chips become pricey and junk becomes the flavor of the week.
In the interim, the market can take hits of 6% to 12%, but I think the bull has room to run. At some point, when the it becomes too easy to make money, when the less you know the more money you can make, when people quit the day job to trade, that's when the plug gets pulled and a bear market takes over.
Equity mutual funds got $30 billion to invest during the first three weeks of 2013, so it's possible a chunk of that was invested on Friday contributing to the 149-point surge in the stodgy DJIA.
Yesterday's plunge was attributed to renewed concern for European sovereign debt woes. Spanish yields soared to the highest levels since December. Elections in Italy are contributing to the ability of that country to address its debt problems.
Then too, in 24 days Congress will have had to decide what to do about sequester, automatic spending cuts of $85 billion, which was postponed on January 2. The delay was part of a deal to extend the Bush-era tax cuts to all but the nation's highest earners.
The uncertainty accompanying debate in Congress over whether or not to allow sequester to occur stands to be a damper on investor sentiment.
CONCLUSION: Strong Januaries in post-presidential election years tend to be followed by a correction of varying degrees in February and March. We are seeing an increase in volatility in the market, which is reason enough to exercise caution in taking new positions in stocks.
Resistance starts at DJIA 13,924 (S&P 500: 1,501). Support is DJIA 13,773 (S&P 500: 1486)
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos.
As the tensions from European sovereign debt woes abate, money will flow out of safe havens and into stocks where a better return is hoped for.
APPLE (AAPL: $442.31)
Sellers just won't go away. Not only have they hit AAPL every time it tried to rebound, it looks like they are accelerating their selling.
I have been targeting $444 as a level that had to hold in order to avoid a test of the January 25 low of $435. Failure of $435 to hold increases the odds of a further plunge to $398.
I do not own, nor am I short Apple's stock.
FACEBOOK (FB - $28.10)
Yesterday's $1.62 drop turned FB's technical pattern from positive to a weak neutral. Resistance has dropped to $29.45 and a break below $28 is likely today. I don't own, nor have I ever owned FB. Generally, I don't recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I'll continue technical coverage for a while to accommodate readers.
As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help out targeting a bottom as with FB.
This will be a light week for economic reports. A drop in defense spending and slower inventory growth was responsible for Q4's paltry annual growth rate of 0.1%, following a Q3 annual rate of 3.1%.
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: 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.
ISM Non-Mfg Ix. (10:00)
Jobless Claims (8:30)
Productivity and Costs (*;30)
Consumer Credit (3:00)
International Trade (8:30)
Wholesale Trade (10:00)
RECENT POSTS: 2013
Jan 17 DJIA 13,511 " Market Gets Another Boost From Housing Industry"
Jan 18 DJIA 13,596 "No Debt Ceiling ? That Would Be Bullish !"
Jan 22 DJIA 13,649 "BIG Week for Apple - Catharsis"
Jan 23 DJIA 13,712 "House Vote on Debt Ceiling - Countdown Begins"
Jan 24 DJIA 13,779 "Apple Selling Climax - Trader's Buy ?"
Jan 25 DJIA 13,825 "Easy Does It ! More to Come, But …."
Jan 28 DJIA 13,895 "Speculative Phase of Bull Yet to Come"
Jan 29 DJIA 13,881 "Market Needs a Breather"
Jan 30 DJIA 13,954 "Apple at a Key Juncture"
Jan31 DJIA13,910 "January Barometer Set to Forecast More to Come"
Feb 1 DJIA 13,860 "Is Apple Turning the Corner ?
Feb 4 DJIA 14,009 "Individual Investor Rushing In to Buy "
*Investment Company Institute data reported by Bloomberg
"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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.