Ralph Acampora Technical Analysis Market Letter - November 2013
An article by New York Institute of Finance Technical Analysis instructor Ralph Acampora.
Janet Yellen Kicked-Off The Year-End Rally Season
Between May 24th and November 12th, 2013 the Dow Jones Industrial Average was locked into a 1,158 point trading range between an intra-day low of 14,551 and an intra-day high of 15,709. This deadlock was broken when Janet Yellen defended the FED's ultra-easy monetary policy at her confirmation hearing on November 13th; on that particular day, the DJIA was off 150 points early in the session, only to reverse dramatically, erasing all of that day's losses and then scoring an all-time new high. This upside momentum continued:
The new closing high in the DJIA complimented the new closing highs in the DJ Transportation average - together they ended the secondary correction and re-confirmed the primary bull market for the followers of Dow Theory.
The Dow Industrial and the SP 500 crossed above their respective psychological levels of 16,000 and 1,800 several days later.
Global Markets Are Not Sitting Idly By
While the DJIA was struggling to break out of its 5 1/2 month trading range, the German DAX Index hit an all time new high for the first time and continued moving higher, adding on a gain of 20%.
China announced major economic and social reforms: namely, the removal of the 'one-child-only' policy and shifting IPOs out of government's hands onto the market place. As a result, the ETF representing China (FXI) leapt 11% in three trading days; it broke above a near-term resistance level and, as of this writing, is now retesting its major downward bias that commenced in November 2010. I believe that it will eventually cross above its next meaningful resistance at 41.97 and simultaneously break this long-term negative trend. Such a move will enhance the longer-term outlook for China. Stay tuned.
In Japan, "Abenomics" is spurring the stock market. Prime Minister Shinzo Abe reinforced his support for bond prices along with reforms that are designed to push stock prices higher. Technically, the ETF for Japan (EWJ), like the China (FXI), is also closing in on meaningful resistance (at 12.43). I believe that it will soon breach this level, taking it back to its July 2008 period and setting an objective to the 15 level.
"New & Hot" versus "Old & Cold"
Recently when talking with my step-son Ross, I happened to mention a company named Eastman Kodak. He quickly queried me: "What's an Eastman Kodak?" I said: "Don't you remember the little "yellow box"? He responded: "I have absolutely no idea what you are talking about!" I suddenly realized that this 22 year old, University of Minnesota student was too young to remember one of America's most iconic corporations and a component of the Dow Jones Industrial average. But ask Ross about Tesla or Netflix and you will get an instant update on all of the latest and greatest technological developments going on in his world. And here I am struggling to figure out how to use my new Samsung G4 phone. Recently, Coca Cola dropped to second place as the most well know brand name in the world. When I told Ross, he immediately said that Apple had to be in first place now. And guess what? He was right!
The world is rapidly changing and investors' appetite is definitely reflecting this generational divide. I took this observation one step further - I wanted to compare flashy new stocks to the old, out-of-favor names. For example, Tesla gained 438% between March and October 2013 while General Electric was up only 2.46% during that same period of time. However, between September thru November 18th, 2013, Tesla dropped 38% while GE gained 15%. My conclusion is that there is an on-going shift taking place - a game of catch-up for the old names that here-to-fore had simply fallen between the cracks over the past four years. Other old fogies that have broken to the upside and are now at levels not seen in many years - the implications are that they have substantial longer-term potentials: Texas Instruments (TXN) now trading at its May 2001 level; Pfizer (PFE) is back to its September 2004 highs; DuPont (DD) is closing in on its May 2000 area; Microsoft (MSFT) is at it July 2000 price and Micron (MU) is approaching its August 2002 level.
Recently, I was asked: What do you see that is so compelling about this market? My answer: It is not what I see but rather what I don't see that is so compelling - I don't see any major selling pressure whenever the market backs down. In fact, the pauses to date have been used as buying opportunities for those who still remain bullish and for those who have underperformed year-to-date; these lagging portfolio managers are under-the-gun to improve their performance and time is now fast running out. Why chase Google (GOOG - $1,028), up 405% from its November 2008 low, when names like TXN - $42, PFE - $31, DD - $61, MSFT - $37 and MU - $19 are still trading in double-digits and have the potential to double and triple over the next couple of years? Remember, the life-line of every bull market is rotation - it is this rotation into the older names that is so encouraging.
My primary S&P 500 target for 2013 is 1,800; I believe that this year-end rally season could fulfill my secondary 2013 target of 1,850.
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