SUSIE GHARIB: Our next guest believes the stock market will pause, rest
and consolidate at current levels. He’s Carter Worth, chief market technician at Oppenheimer Asset Management. Carter, nice to have you back on the program.
CARTER WORTH, CHIEF MARKET TECHNICIAN, OPPENHEIMER: Thank you, thank you very much.
GHARIB: Since you studied charts let’s go straight to the charts.
We’ve got here a chart for the S&P and looking at it we see a big sell-off last summer and then a rally since December. And moving along looking at this chart of the Dow’s performance, pretty of the same story as it is creeping into the 13,000 level. So tell us why you think that the rally is
going to pause at this point with all this momentum?
WORTH: Sure. So just as the previous part of the program was citing the economic news is better, the housing, the jobs and so forth. But there’s wisdom in price. The price action started moving up in October.
October 4th was the lull, before any of this good data was out, meaning the greatest leading indicator of all is price. So price moves first and we’ve now moved from 1075 October 4 low to 1360 where we are now. Some 30 percent. And just as you cited, when in principal you recover all the lost ground of a proceeding plunge, and people who lost a lot of money then have that money returned to them, they become interested sellers.
which is to say that’s where memory kicks in. So all the people who bought in May, June and July just before last summer’s wipeout and now having been made whole, the human condition is to do just that, take one’s money back.
GHARIB: So when, after you get through that phase, when do you make
the next move up on these indexes? And where do you see the target on the S&P and the Dow over the next few months?
WORTH: Sure. So the principle is that you get to the where we are now and then you respond to it, which is that backing and filling and solving process, as people from before sell. And then that takes place over a course of two to three months. And this is a fairly well defined time frame when you have this circumstance that we have now. After if and as you can consolidate, pause, rest and then you exceed the past tops having responded to the past tops. The indication would be something on the order of 1425 for the S&P 500 and 13,500 that kind of thing, 13,600 for the Dow.
GHARIB: You know Carter, stocks have been so unloved for so long by
investors, but if we look here at this chart and look at these statistics of investor sentiment from the American Association of Individual Investors, we see that 42 percent of individual investors are now bullish;.
26 are bearish. What is your analysis of these statistics? Are investors
really confident about buying stocks?
WORTH: Well, what’s interesting, those figures basically two to one bulls to bears, they were exactly the opposite just four months ago. So in October, you had 40, 45 percent bearish and only 20, 25 percent bullish.
So it is the exact reciprocal of the mirror image of where we are were and having moved up 30 percent and this is again the human condition, people are typically pessimistic at the bottom where things are poor and then when things are quite good and euphoric they want to be more involved. So at this point that is also as a contrarian indicator a negative.
GHARIB: Uh-huh. And talking about euphoria, there has been a lot of
euphoria about shares of Apple (NASDAQ:AAPL). You have a “sell” on the stock. Let’s take a look at this chart too which closed above the $500 level today but it has been hovering back and forth in that area. What’s your technical analysis on Apple (NASDAQ:AAPL)?
WORTH: All right, so we went out with that yesterday, after the close which is to say when you have what’s called a key reversal day, where a stock has been in a long-term up trend, that then on the day in question has yet euphoric new highs, almost incredibly so where people cannot believe it’s not stopping, it’s not stopping. And then in that very day that session it closes on the absolute low which is also the case yesterday, down on the day and very, very heavy turnover. Volume at or near a record, it reflects an intermediate top that is likely to stand for many, many months. So that high of $526 yesterday and we closed down at $490 or thereabouts. That should set the top for months.
GHARIB: For months, all right. You’ve given us a lot to think
about. Do you own Apple (NASDAQ:AAPL), any disclosures to make?
WORTH: No disclosures.
GHARIB: Carter, thanks so much, fascinating information.
WORTH: Thank you.
GHARIB: We’ve been speaking with Carter Worth. He’s chief market
technician at Oppenheimer Asset Management.
HUDSON: The news out of Europe today also encouraged some U.S.
investors, as a second bailout for Greece appeared more likely. German officials today dropped plans to hold back some of the bailout money after reassurances from Greek politicians they will implement spending cuts and austerity measures. The German, Dutch and Finnish governments had floated a two-part payment idea because of worries about giving the entire $170 billion at once would lead to trouble.
GHARIB: Here in the U.S., it looks like Congress will vote tomorrow
on an extension the payroll tax cut, but while he supports the tax cut, House Speaker John Boehner said it won’t create new jobs. Also on Capitol Hill, Treasury Secretary Timothy Geithner told lawmakers he hopes the new- found spirit of bipartisanship can continue. He believes both sides can come together on investments in infrastructure, home refinancing and foreclosure prevention efforts. But the secretary also admitted, a major deficit reduction package or overhaul of the tax code are likely out of reach. And still ahead on the program, Microsoft (NASDAQ:MSFT) shares are on the march to a four-year high. We’ll look at what’s behind the rally in tonight’s “Market Focus.”
HUDSON: General Motors (NYSE:GM) got a yellow caution flag in the
final lap of last year. The company’s fourth quarter earnings came in at
$0.39 a share. That was $0.02 below Wall Street estimates and down $0.13 compared to the same period a year earlier. The company blamed its disappointing performance in the final quarter last year on problems in Europe and South America. Diane Eastabrook has more from Chicago.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It wasn’t all bad news for GM today. The company’s 2011 profits increased more than 60 percent to $7.6 billion. Last year was GM’s first full year operating as a public company since emerging from bankruptcy. Beyond that, the news for the world’s largest auto maker gets darker. While North America seems to be finally firing on most cylinders, both Europe and South America are flagging and Europe is the biggest problem. The region’s debt crisis and stagnant economy have stalled vehicle sales. Morningstar (NASDAQ:MORN) auto analyst David Whiston says GM’s options are limited.
DAVID WHISTON, AUTO ANALYST, MORNINGSTAR: Really, your only options
are to either close plants and/or amend the labor contracts with the unions and I think the really, really hard part is how are you going to get the unions to play ball when their contracts don’t expire until 2014, and unions over in Europe are very, very militant.
EASTABROOK: GM also acknowledged possible headwinds in North
America. The company is selling more cars, especially small ones, than pricier pickups and sport utilities. Whiston says the company needs to carefully manage supply and demand of those products without offering steep incentives.
WHISTON: In other words, have a great product and produce only to meet demand rather than overproducing and then you would have to put up a ton of cash, which kills residual values. And you get in a horrible spiral that we had before that ultimately led to bankruptcy, but we’re not going down that path again.
HUDSON: Diane joins us now from the CME Group (NASDAQ:CME) in
Chicago. Diane, when looking at these two big regions Europe and the U.S., let’s tackle the U.S. first with General Motors (NYSE:GM), what is selling in the United States, a question of consumer demand and profit margins, so how much of that is under GM’s control?
EASTABROOK: Not a lot unless they can control oil prices. We’ve
seen this phenomenon, Tom, over the past few years when we see prices at the pump go up. People migrate into small cars and hybrids. We see pump price goes down. They start buying SUVs and pickups again. And energy analysts are talking about the possibility of $5 gasoline this summer, so that really doesn’t bode too well for those pickups and sport utilities.
HUDSON: Close to $4 here in south Florida and I am sure you are over
that in some places in Chicago already. In Europe meantime, how realistic are these ideas of actually closing plants or laying off European auto
makers, auto workers?
EASTABROOK: Well, it sounds like it’s a really tough sell, but there
are some things that GM can do in Europe. It’s talking about cutting costs. It’s talking about possibly consolidating some back-office operations, in Voxal (ph) and in Opal. And one of the things that Whiston mentioned today which is interesting, is possibly moving some Chevy manufacturing from South Korea over to Europe where they have excess capacity. So that’s one option that they might be able to pursue.