The market needs a consolidation, not a correction
For now, there's nothing wrong with watching from the sidelines and letting the selling run its course.
Stocks are moving higher Friday, helped in part by better-than-expected earnings from Hewlett-Packard (HPQ) this morning.
The computer maker's arnings and sales growth declined from the year-ago quarter but still came in well above expectations. Fiscal first-quarter profit fell 11% from a year ago to $0.82, well above the Thomson Reuters consensus estimate of $0.71. Revenue fell 6% to $28.3 billion. Analysts expected $27.8 billion. It also raised its second-quarter earnings guidance to $0.80 to $0.82 a share. The current consensus estimate is $0.77.
It's nice to see some green early Friday after two days of sharp losses, but after two straight days of institutional selling in the major averages, investors have good reason to tread cautiously. This is not an environment to try to catch stocks on sale.
If you started buying high-quality names after the market confirmed a new uptrend on Nov. 23, there's nothing wrong with taking partial or full profits here. And if recent new buys are struggling, protecting capital and keeping losses small is sound strategy.
The broad-based NYSE Composite Index showed six higher-volume declines and one day of stalling action on Jan. 24. Selling has been less pronounced in the Nasdaq Composite and S&P 500. Each index shows three higher-volume declines and one day of stalling action. When higher-volume declines start to cluster in the indices, it can often presage more price weakness.
What's hard to believe is that after a 14% rally for the Nasdaq and S&P 500 since the mid-November lows, both indices have only pulled back 2% to 3% off recent highs. That's not much of a consolidation. A major support level for the NYSE Composite is its 50-day moving average around 8,698. The S&P 500's 50-day line is at 1,473. For the Nasdaq, it's 3,105. The risk for more downside is clearly there, especially with a slew of retail earnings reports on the horizon. I'd like to think that retail CEOs will be confident about overall business and consumer spending in 2013, but we could hear a different tune.
Nordstrom (JWN) didn't get things off to a great start after the close Thursday.
Shares fell 2% in after-hours trading after the upscale department store operator guided full-year earnings below expectations. The stock was down almost 1% in afternoon trading Friday.
It's been tough watching solid gains evaporate over the last two sessions, but the market is in dire need of a consolidation phase -- not a full-blown correction but a modest pullback that will give stocks time to catch their breath.
Buy prospects are scant and extended stocks are a dime a dozen. A consolidation phase will change this and present new buying opportunities in due time.
More from Benzinga
shallow b.s. ken. where are the fundamentals? china is putting the brakes on housing and that will squeeze out a massive correction in their "shadow banking" system, the US sequester will lead to higher unemployment and lower gdp, europe is a slow train wreck waiting for the end of the tracks, japan is starting an unwinnable one-sided currency war that will accomplish nothing, the fed is beginning a slow revolt over the 24/7/365 printing press that will only gather steam, go to usdebtclock.org and see how overextended we are with national debt/consumer debt/unfunded entitlement debt and adding a million per minute to the national debt with no solution or compromise in sight. this entire "rally" is nothing more than a fed-created bear-trap waiting to clamp down on the unwary small investors (as usual) - is all hopium and smoke and mirrors that will vaporize with even a small rise in true free-market interest rates - the recent small uptick in core CPI is the first click on the geiger counter of this big pile of nuclear waste ... oh don't get me started ....
in brooklynese ... iv'e got your consolidation right here mister ....
be safe out there, and use a safety net ....
Something 's up with the Dow. Since Jan 29 RSI has been down and Feb 7, the MACD issued a sell signal expressing a negative tone, which under "normal" circumstances suggest the Dow should be falling. Instead, over the last 25 days it has been steadily rising, contradicting the indictators that assess it's disposition. That could happen for a day or two, not 25.
I read indicators for a living and what's happening with the Dow is not right.
"the fed is beginning a slow revolt over the 24/7/365 printing press that will only gather steam,"
It requires about 300 basis points to service and collect credit. Cardboard credit brokers are hawking 2.75% rates and APR. That means the raw rate doesn't have enough in it to actually cover base costs. As the Fede stops buying crap assets, the banks must service and collect their own toxic mess. If you know what the fizzle of the sizzle is (remember Norwest) you know darn well that banks can count the days.
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
Here's a list of ways to profit from the potential move from defensive to cyclical stocks.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.