Yesterday’s renewed strength was drawn from Housing and Jobless data, but possibly from those “in the know” that news was coming after the close that House Budget Committee Chairman Paul Ryan’s indicated the House was considering a short-term increase in the debt ceiling pursuant to cutting the nation’s debt through spending cuts.
An ugly brinkmanship debate bordering on “default” on the payment of certain government bills has been one of the major reasons for my pessimism about the market’s performance in Q1.
Just a reasonably bipartisan effort to address the debt/spending issue would be bullish.
In recent weeks, I assumed the Street didn’t care, that the market could plod ahead regardless of how ugly it got in Washington. Based on what was just passed over the transom by Ryan, the Street may know more than I give it credit for. We won’t have to wait long for the answer.
TODAY:
Fed Ex (FDX) and UPS, good barometers for business expectations, have been motoring well this month and especially in the last seven days,
Support is DJIA 13,577 (S&P 500: 1,475).
DJIA: 13,596.02
S&P 500: 1,480.94
Nasdaq Comp.: 3,136.00
Russell 2000: 890.36
Friday, January 18, 2013 (9:15 a.m.)
We are faced with a 3-day weekend, and traders may enjoy it with less angst if they close key positions ahead of it, just in case unwanted news develops. That suggests the absence of aggressive buying and some selling today.
Confirmation about the debt ceiling debate one way or the other will impact prices today or Tuesday.
A POSITIVE NOTE: Yes, I am repeating this, but read over it again, because its merits are gaining traction.
While I am bearish about the early months of 2013, the year can produce a lot of attractive opportunities, just at lower prices.
The U.S. economy has recovered from the worst recession/bear market since the 1930s. We survived, and that is huge.
Housing is in recovery mode, increasing homeowners’ “wealth effect,” corporations are flush with cash and hopefully the 113th Congress can resolve key spending issues, setting the stage for a sustainable recovery beyond the current one.
Signs of an economic recovery are surfacing in China with some forecasters becoming more optimistic about Europe’s stabilization and return to growth.
I see an interruption to the bull market in coming months that started in March 2009, but which has not fully run its course.
Individual investors are largely absent, but they will return to buy near the end of the bull market when speculation ramps up. That can be a year or two out.
A fully mature bull market almost always ends with speculation running rampant. We have not seen any sign of that yet. While corrections will interrupt this bull market and we may even see a mini-bear (down 20%), I can see this one getting pretty wild. Think of where we came from, what we have endured, and how exciting the investment environment can get if the economies of all countries become in lockstep albeit at different rates of recovery.
BOND MARKET:
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. The short-term bonds are obviously not the problem, but long-term bonds are vulnerable.
APPLE (AAPL: $506.37)
Pre-market trading has taken AAPL below $500. Sellers are still in a hurry to lighten up. Possible scenario: a drop to $493 followed by a brief rally to $497.30 followed by a drop below $490. A very BIG buyer is needed. They are out there, but they may just be waiting for a heavy volume sell off (“flush”).
What about the selling climax scenario I referred to Wednesday ?
It’s still possible, so be very careful. In the late stages of a prolonged decline in a well-known stock, fear mounts creating more selling resulting in one final high-volume plunge that flushes out all sellers big and small, and that marks the bottom. It happens so quickly, then to everyone’s dismay, the stock rebounds sharply, as it traces out a “basing pattern from which it can eventually recover. Much depends now on the Jan. 23 earnings report and the projections that accompany it.
AAPL’s Q4 earnings are scheduled for release on Wednesday Jan. 23
I do not own, nor am I short Apple’s stock.
FACEBOOK (FB – $29.96): Resistance starts at $30.33. Near-term support is now $30, but I don’t think that can hold, and $28.66 would be more reasonable. The stock was hit Tuesday by an announcement that it had lost 1.4 million active users and by news of its introduction of Graph Search, which facilitates users’ search through connections for various items of interest. I’m not sure how smarter people than I view FB’s Graph Search. Often, you have to give them a few days on deals like this to work their slide rules, which suggests FB’s slippage may reach $28.65.
FB has some 167 million users in the U.S., and 1 billion worldwide.
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.
ECONOMY:
Note: I am going to list the economic reports will not include the numbers from the last report, since those numbers are often revised significantly and therefore potentially misleading.
I suggest you access the website: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.
FRIDAY:
Consumer Sentiment (9:55)
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.
