Pivots Still at Play in January
A warning that stocks have achieved significant highs requires the Dow transportation average to have a weekly close below its annual pivot at 5469. This is highly unlikely to occur today, as Thursday's close was the third consecutive all-time high.
On Wednesday, I wrote, Transports Are Truckin' Ahead of Earnings, and explained that confirming a macro "Dow Theory Buy Signal" requires that the Dow Industrials set a new closing high above its current closing high at 14,164.15 set on Oct. 9, 2007. Without this signal the stock market is establishing a major top that could last several years.
On Thursday, I wrote, Overvalued Home Builders Face Earnings Hurdle, and explained that some home builder stocks continue to have buy ratings with the momentum to trade higher near term. However, in each of the past two months the number of the buy-rated home builder stocks has declined. On Thursday, following the solid housing starts data only buy-rated Pulte Group (PHM) set a new multi-year high. Buy-rated D R Horton (DHI) , hold-rated KB Home (KBH) and buy-rated Toll Brothers (TOL) stayed below multi-year highs set in September/October.
Next week is another important week for earnings. On Monday I will profile five Dow components and four other stocks including Google (GOOG) who reports quarterly results after the close on Tuesday. On Tuesday I will profile another five Dow stocks and four other stocks including Apple (AAPL) who reports quarterly results after the close on Wednesday. On Tuesday, I profiled Apple and Google in Mojo Shifting for Apple, Amazon and Google.
The fundamentals for the stock market are not cheap; 43% of all stocks are undervalued with 57% overvalued. All 16 sectors are overvalued with eight overvalued by double-digit percentages; consumer staples, construction, transportation, industrial products, finance, medical, computer and technology and retail-wholesale.
Here are the pivots that continue to be magnets in January:
The Yield on the 10-Year Treasury Note (1.870%): The rise in yield held my annual value level at 1.981% on Jan. 4. Wall Street and most buy-side strategists have been advising investors to avoid U.S. Treasuries for years now. At the end of 2007 investors could have bought the 10-year note at 4.035%, and today this would be a 5-Year note which ended 2012 at 0.724%. The S&P was 1468 at the end of 2007 and 1426 at the end of 2012. My annual and semiannual value levels are 2.476% and 3.063% with the annual pivot at 1.981% and my semiannual risky level at 1.413%. Remember that QE3 and QE4 will continue until the unemployment rate falls to 6.5%.