Saturday, February 1, 2014

Follow the Trail

 I thought it might help to review the last week and my predictions. 

Jan 24, 2014 318 point decline

We haven't seen one of these days for a long time. The question I think some of you might be asking is, "Are we in a dip or is this the start of a significant correction?" I would say that is a great question perhaps I can take a stab at answering it for you. The largest single correction in the markets since it began its run has been just over 7%. So if we take the high in the S&P 500 at 1,850 then a 7% correction is about 130 points would take us to 1,720. We closed the market today at 1,790 and that put us just under half way to 7%. 

With such a significant sell off today I would expect a lot of investors to be thinking about selling on the opening over the weekend to protect profits, so I expect some selling pressure on the opening that could take us to 1775. Next I would expect to see a bounce back close to the 1790 level and some consolidation before we make a run at a new high or further decline.

Wall Street may be telling a different story in the sell so far this year. Wall Street has been a big supporter of the President and as long as the Fed was pumping money into the system Wall Street could make money, a lot of money. The free money may be coming to an end. Now with the Fed starting to reduce the stimulus the easy money may be gone regardless of how the economy is doing. 

Big companies are face the challenge of Obamacare and are cutting back on earnings estimates. The market can't continue to go up if earnings aren't there to support prices. Perhaps this market decline is a warning to the President that his state of the union address this week has to take a different tone. Be sure if the President doesn't deliver the markets will be down the next day.   

I found this link to a WSJ story that might be of interest to you. Click on the link below and enjoy,

Dan Perkins

A client sent me this question. What are your latest thoughts on buy time with the market? 1/29/14

Frank, in my quick note last Friday  suggested that the biggest correction in this run was 7%. If we were to correct to the mean then 7% would be 1720 on the S&P. However I did caution that depending how the presidents speech was received that we could see the markets fall on Wednesday. Based on the 190 point decline today the markets didn't like the state of the union message.  I do believe that we might see a rally back to 1790 but I would then expect to see it fail and a test of 1720 level. If the 1720 level is breached then we could quickly fall to 1665 which would be a 10% correction. 

Feb 1, 2014

If you look at the above I pretty much nailed it. What is very exciting for me, and will be for you when you receive your statement, is that I looked at every account after the close and for the most part most of the accounts minus any withdrawals were flat to up for the month. The Dow Jones was off over 5% while the broader S&P 500 as off just under 4%. So if you were flat for the month on a $500,000 account then you didn’t loose $25,000.

I think we will try the 1790 level on the S&P but I think the market will struggle to break out above 1790. Significant support for the S&P is 1775 which I think we will break perhaps next week. A normal correction would take us to 1720. If the level doesn’t hold then a full 10% correction would take us to 1660, which I think is possible.

Gilead earnings out on Tuesday the fourth and we should get some information on the sales of the Hep C drug. We added to some accounts additional shares of NLY and got a nice pop up in a down market.

I expect the markets to be volatile until we get through the debt ceiling issue. I’m watching and looking for opportunities.

I’m getting a new camera so I hope to be up to speed soon.

Dan Perkins

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