News Column

Stock Pickers' Market - Where to Look

January 17, 2014

George Brooks

In spite of countless obstacles along the way, the 177% gain in the S&P 500 (233% Nasdaq Comp.) since early March 2009 , have rewarded savvy investors handsomely. Understandably, they want more. Latecomers to the party are driven to play catch-up. While the overall market and selective sectors will continue to reward investors, the big bucks stand to be made in individual stocks, i.e. it will be a stock pickers' market. My list below, "Technical Analysis Alert" is intended to uncover stocks that investors are targeting. Expect volatility to increase as institutions switch between industry groups. Q4 earnings will be reported in coming weeks, along with the dreaded changes in broker ratings and estimates for coming quarters. Expect sharp moves both ways. The risk of a Q1 correction is still there, as explained below, butthis week's rebound suggests the burden of proof is now on the bears. If this is going to happen in January, they have their work cut out for them. One industry that must be watched closely is the housing industry . Housing Starts for December were reported this morning. Starts were down 9.8% vs a gain of 23.1% in November. Building permits for December were off 3.1% vs. a drop of 2.1% in November. Of interest here is the 12% jump in the Mortgage Bankers' Applications for the week ended Jan. 10 . Refis were also up (11%). The average rate for conforming 30-year mortgage ( $417,000 or less) fell 6 basis pts. To 4.72 pct. A negative report today may be followed by improving numbers in coming months. One home builder I track is the PulteGroup (PHM) under "Timing-Opportunity Stocks" below, and its technical pattern is starting to shape up. Its reaction to today's report will be revealing. Strength would suggest today's numbers are a head fake. TODAY : Resistance is DJIA: 16,468 (S&P 500: 1,851) Support is DJIA: 16,386 (S&P 500: 1,842) Breaking those supports, look for DJIA 16,342 (S&P 500: 1,836) Investor's first read - a daily edge before the open DJIA: 16,417 S&P 500: 1,845 Nasdaq Comp. 4,218 Russell 2000: 1,173 Friday, Jan. 17, 2014 9:15 a.m. I AM REPEATING THE FOLLOWING TO MAINTAIN AN 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 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: $554.25 ) Positive Support is $552 . Break up through $560 paves the way for high $560s Facebook (FB: $57.19 ) Positive Rebounded nicely Tuesday, but ran into a seller Wednesday and Thursday at $58 . May have to drop to $56 to find buyers. IBM (IBM: $188.76 ) Positive Big day yesterday, now attacking resistance at $190 . Support rises to $188.35 . Pulte Homes (PHM: $19.69 ) Positive (Note: 12% jump mortgage apps reported by MBA). Friday's attempt to breakout was reversed by a big market drop Monday. Stabilized Tuesday and Wednesday. Thursday was a reversal day with potential to attack resistance between $20 and $20.50 . Of interest here is the 12% jump in the Mortgage Bankers' Applications for the week ended Jan. 10 . Refis were also up (11%). The average rate for conforming 30-year mortgage ( $417,000 or less) fell 6 basis pts. To 4.72 pct. Granted it was one week in a new year, but I haven't seen any press on this. First Solar (FSLR: $52.20 ) Negative Goldman Sachs really skewered this one when it downgraded it to a sell from a buy. Broke support at $51 and found some buyers north of $49 , but needs big buyers to turn the corner. Is up three days in a row. Stock has the potential to turn here. Support is now $52 . Nike (NKE: $74.79 ) Negative - Stabilized after Monday's crunch. Must break up through resistance at $75 to improve pattern to a neutral/positive. Technical pattern still ugly. A big "up" today would help. Hewlett-Packard (HPQ: $29.56 ) Positive . Had a decent day in a lousy market Monday but closed off from its intraday high Tuesday. Hit a 52-week high ( $29.07 ) Wednesday and Thursday. Support is now$29.30. Like the pink rabbit, it doesn't want to quit. Polaris Inds . (PII: $138.11 ) Positive Still probing for support and may have to drop to $134 - $136 to find it. Resistance is $140 . Amazon (AMZN: $395.80 ) Positive Locked in a trading range between $390 and $405 . Pandora Media (P: $35.74 ) Positive. Stock has been responding to positive "listener" data news for 2013 year. Tuesday was a rebound day. Posted a new 52-week high Wednesday and again Thursday at $36.30 . Has a history of volatility, could swing two points either way. 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. NOTE: Monday's market plunge adversely impacted most of the technical attractiveness of the following stocks, but all except Cardtronics (CATM) stabilized or rebounded sharply . Yesterday, I have noted price levels where I thought these stocks should encounter buying (support). But the intensity of the weakness in the overall market can take them much lower. While lower prices can make a stock more attractive, a decline can be a way station en route to yet lower prices, especially if the overall market is in a tailspin. A break below these support levels can eliminate a stock from this list. These stocks were demonstrating technical strength before Monday's slump, so they could rebound sharply. So much now depends on what the overall market does. Align Technologies (ALGN: $62.12 ) Listed here (12/23) at $57.03 . Support: $61 Gentex (GNTX: $33.57 ) Listed here (12/23) at $32.64 . Support: $33.40 Netease (NTES: $79.92 ) Listed here (12/23) at $74.51 . Reversed after hitting 52-week high $84.35 . Support: $79 Spirit Airlines (SAVE: $50 ) Listed here (12/23) at $46.06 . Support: $49 Valeant Pharm (VRX: $137.34 ) Listed here (12/23) at $112 . Support: $136.60 Dycom (DY: $28.18 ) Listed here (12/23) at $28.05 . Support: $28.10 Cognex (CGNX: $38.35 ) Listed here (12/23) at $36.09 . Support $38 Salex Pharm. (SLXP: $96.43 ) Listed here (12/23) at $87.61 . Support: $95 Natus Medical (BABY: $25.80 ) Listed here (12/24) at $22.80 . Support: $25.70 Sierra Wireless (SWIR: $22.66 ) Listed (12/24) at $22.33 . Support: $22.60 RPM Int'l ( $43.17 ) Listed here (1/13/14) at $43.09 . Support: $43 Silicom Ltd (SILC: $47.17 ) Listed here (1/13/14) at $46.44 . Support: $46.70 Bitauto (BITA: $35.83 ) Listed here (1/13/14) at $36.44 . Support: $35.60 Avery (AVY: $51.23 ) Listed here (1/13/14) at $50.88 . Support: $51 Alexion Pharm .(ALXN: 139.81) Listed here (1/13/14) at $135.21 .Support: $138 . 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 to . 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." TUESDAY: NFIB Small Business Optimism Ix. (7:30) Dec. rose 4 pts. To 93.9 vs 92.5 Nov. ICSC Goldman Store Sales (7:45) Weather blamed for 1.0 pct. drop in chain store sales - week ended Jan 11 . Retail Sales (8:30) Dec. retail sales up 0.2 pct. Import/Export Prices (8:30) Business Inventories (10:00) Nov. +0.4 pct.. Stock to sales ratio: 1.29 WEDNESDAY; Producer Price Ix . (8:30) Dec +0.4 pct. (+1.2% y/y); ex-food and energy +0.3 pct. Empire State Mfg. Svy (8:30) Index jumped to 12.5 in Jan. from 2.2 in Dec. Beige Book (2:00) THURSDAY: Jobless Claims (8:30) Proj: For week 1/11/14 down 2,000 to 326,000 Consumer Price Ix . (8:30) Dec +0.3 pct. vs flat Nov. Philly Fed Svy (10:00) Jan index up to9.4 from 6.4. New oeders down to 5.1 from 12.9 Housing Mkt. Ix. (10:00) Jan index56 vs 57 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 26 DJIA 16,357 Year End Opportunities Dec 27 DJIA 16,479 January 2014 Profit-Taking Will Hit Certain Stocks Dec 30 DJIA 16,478 Be Prepared to Take Advantage of 5% January Correction Dec 31 DJIA 16,504 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 Up, Or Down in January ? Jan 13 DJIA 16,437 What's Needed to Trigger a Surge or Slide in Stocks Jan 14 DJIA 16,237 How Ugly Can This Correction Get ? Jan 15 DJIA 16,373 Correction ? Not So Fast , Says Nasdaq Jan 16 DJIA 16,481 Stock Pickers' Market - Rewards, Risks * InvesTech Research , James Stack , Editor( - 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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