It’s
been said that as January goes, so goes the stock market. A majority of the time, that January
ends lower, the market will end the year lower as well. I say forget that because this isn’t a
typical January. So let’s make
that the end of that useless statistic.
It’s no secret that it has been a rough start to the year for stocks,
but it was to be expected given the 30% gains we had last year without a single
5% pullback. Back on January 5th,
I said that I am looking for a pullback in the S&P to the 1765, and on
January 29th, the market pulled back to 1770, only to rally 24
points on Thursday, and then fall 12 points on Friday. In a week where the market was moving
up and down 1% or 2% almost on a daily basis, the S&P closed relatively
flat, down just 0.45%. That was a really
strong week which came in the face of Fed easing (announcing another round of
$10B reduction in bond buying on Wednesday), currency disasters in Europe, and
worse than expected economic data in the US and China.
This coming week could be a
critical point for the market as it has been flirting with that key support
area of 1770 almost daily, each time rallying off that level. The last time the S&P closed below
1770 was on November 12, and has since tested that level 12 different days,
each time leading to a rally. If
we break through that support, the next stop will be around 1711, which is the
61.8% Fibonacci retracement. While
long-term I remain very bullish stocks, and I maintain my S&P price target
of 2163, I have to caution on the short-term until the S&P can close above
1815. If you look at a daily
chart, it looks very top-heavy and has built a strong bearish
head-and-shoulders formation at all-time highs. Consistently closing above 1815 would nullify the formation
and should lead to more buying by technical traders. That’s how the chart tells it, but what do I think is going
to happen? I still maintain my near-term
bullish stance on gold and treasuries and remain neutral on stocks. I think the market will continue to
trade flat to lower and I am eyeing that 1711 level to turn bearish treasuries
and bullish stocks. In the
meantime, I still see this as being a “stock picker’s market,” where the stocks
that can surround themselves with positive news and strong earnings will
continue to outperform, no matter where the broader market goes. In the meantime, I would stick with
gold (GLD) and treasuries (TLT), which have outperformed the S&P by 5% and
10%, respectively. The momentum is
in those two markets, especially with treasuries, which had their biggest
monthly gain since May 2012, which just so happens to coincide with stocks
having their WORST month since May 2012.
As
for which individual stocks you should keep your eyes on, look at the companies
that have outperformed in the first month of the year AND have reported strong
quarterly results. In technology,
I like Google around $1,060, Qualcomm around $72, and Microsoft around
$35.50. If you have to be in a
retailer, I still like Macy’s at $49.50, Amazon if it falls to $340 and Michael
Kors at $77.50. Look at the
airline stocks like Southwest Airlines, United-Continental and Delta Airlines,
which can all be bought on Monday.
Union Pacific reported a great quarter and is trading near all-time
highs, and Gilead Sciences hasn’t reported yet, but is up almost 10% this
year. While long-term, I like
Boeing, Ford, Home Depot, Goldman Sachs and Apple, they have all (except Home
Depot) reported bad quarters and/or offered weak guidance, so in this market,
these are stocks you should stay away from as there is still more downside in
these names.
Treasuries
and gold have been the place to be in 2014, and I see that continuing for the
next couple weeks. If you are a
long-term investor, there is no need to sell your whole portfolio just because
of a temporary pullback, unless you think the company behind your stock is
broken. I am still in the camp
that thinks the market will be much higher at the end of the year and you just
need to sit through this current profit taking.
My current positions: Long
Ford (F), Toll Brothers (TOL), Gilead Sciences (GILD), SunPower Corporation
(SPWR), Starbucks (SBUX), Anadarko Petroleum (APC), Visa (V), Apple (AAPL) short SUGAR, long GOLD, long 10-YEAR TREASURIES.
Jeff Lewison
No comments:
Post a Comment