Need to Know: How investors should prepare for that short-term stock breather

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After the worst start in history for U.S. stocks, some would look at the bright green lighting up futures screens this morning and say it’s about time. Not even another cut in the International Monetary Fund’s global growth forecast can spoil the mood this morning.

Gains come after the worst annual growth in 25 years for China has left investors stimulus-hungry, forks pointed at Beijing. That’s not to mention a growing frozen-Fed mentality out there after some recent soft data. The CME Group’s FedWatch tool puts chances of a rate hike in March at 31% (down from 50% a few days ago notes IBankCoin), in April at 35% and 50% for June.

Meanwhile, it’s been hard to move an inch without some forecast about where this market is headed next. From big sell-it-all calls last week to the relaxed bulls over at Goldman Sachs, you might have thought everyone has had their say. But a few calls more have been spilling out, and they’re saying this market is due a bounce.

David Bianco, Deutsche Bank’s chief U.S. equity strategist, told investors Monday that the next 5% move for the S&P 500 will be “up and soon.” (h/t Business Insider) He said he isn’t panicked by the recent slide in stocks because it’s being driven by a “a profit recession centered at certain industries caused by factors that we’ve long flagged as risks.”

Our call of the day is looking for a bounce too, but it comes with a warning: If you’re ready to leap into the next big rally, you’d better be ready for what’s to will follow. Yep, another pullback.

Our chart of the day takes a whack at oil as Brent floors it with some supersize gains. That’s as the IEA warns the oil market could “drown” in oversupply.

Key market gauges

Futures for the Dow industrials YMH6, +1.31% and the S&P 500 ESH6, +1.29% are taking off in a big way after Monday’s Martin Luther King holiday that shuttered U.S. markets, it not Globex. Helping out was a 3.2% Shanghai Composite COMP, -2.74%
surge after that sluggish (for China) growth data. The Nikkei NIK, +0.55%  and other Asia markets rose across the board. After a plunge last week and no surprise on Iran sanctions being lifted, U.S. crude CLH6, +0.92% is back over $31 a barrel and Brent LCOH6, +2.80%   is closing in on $30, up nearly 5%.

Elsewhere, Europe SXXP, +2.04%  has a lock on that rally fever. Gold GCG6, -0.39% is off a little and the dollar DXY, +0.14%  is up against the yen.

The call of the day Jonathan Krinsky, chief market technician for MKM Partners, says brace for a short-term bounce in the S&P 500. That’s after the worst start to the year in history may have winded the bears and sentiment indicators like the American Association of Individual Investors poll shows the fewest bulls since 2002.

He and his team doesn’t think the sellers are finished with this market, and are more interested in “selling a bounce than trying to catch one. In the “best-case” scenario, investors could see that S&P 500 bounce to near 1,900, but don’t expect it to move past 1,950, says Krinsky. On the downside, he says 1,820 and then 1,740 are likely to be tested in the coming months. Here’s his chart:

MKM Partners

“With that said, we understand many clients must remain invested. In that regard, we would fight the urge to bottom-fish beaten-down names, and stick with those exhibiting relative strength,” he says. A similar sell-any-rallies mentality was expressed earlier this month by J.P. Morgan equity strategist Mislav Matejka.

Krinsky offers up 20 names that are above their 200-day moving averages, a chart level that many technical analysts watch closely. They include DreamWorks Animation DWA, -2.30% Popeyes Louisiana Kitchen PLKI, +0.33% Allscripts Healthcare MDRX, -2.53% Dean Foods
DF, -1.09% Luminex LMNX, +0.15%  and Universal Forest Products UFPI, +1.45%

The economy

It’s a light week for U.S. economic data. The only item on tap Tuesday is a home builder’s index due at 10 a.m. There will be no Fed speakers this week ahead of a policy meeting on Jan. 26-27.

Earnings

Health insurer UnitedHealth UNH, -1.35% reported early and shares are up. Morgan Stanley MS, -4.35% is up 4% after the investment bank beat earnings expectations. Bank of America
BAC, -3.54% is still to come.

Delta DAL, -1.85%  is down 1% after the airline’s results.

Netflix NFLX, -2.82%  is after the close.

The stat $1 to $2 a day — That’s roughly the amount children, some as young as seven, are reported to be earning in harsh and dangerous conditions mining cobalt in the Democratic Republic of the Congo, according to a new report from Amnesty International and Afrewatch. They say Apple AAPL, -2.40% Samsung 005930, +4.00% and Sony SNE, -3.86% have failed to do basic checks to ensure that cobalt mined by child laborers hasn’t been used in their products.

The buzz

Netflix’s CEO Reed Hastings says the streaming service may soon get a license to operate in China.

Jan Koum, the CEO of Facebook FB, -3.46% -owned WhatsApp, said the company is dumping the $1 annual fee for subscribers and is now looking at a business-to-consumer strategy for a revenue stream. Koum spoke to Wired Magazine about the move. ”We view this as a logical next step to drive and hopefully accelerate consumer adoption,“ said Credit Suisse analysts in a note.

Twitter TWTR, -5.58%  (the service, not the stock) has been suffering on and off outages across the globe.

Security risk in home routers has been unearthed by The Wall Street Journal.

The World Economic Forum has begun in Davos, Switzerland, and the BBC has done a fun little map showing connections between delegates.

Lots of chatter about the Oxfam wealth inequality report that came out Monday that shows 62 wealthy individuals own as much as the poor half of the world. And they all fit neatly in a bus now:

Oxfam

The chart

Iranian oil is something the market will just have to get used to, even though it could take longer than anyone thinks for production to get up to full speed. Bucking up against that rally for oil this morning is this chart from investment strategist Callum Thomas, which shows how oil prices tend to crater going into February, followed by a nice ride up. But, of course, one could say the rule books on crude are being rewritten these days.

The quote

Getty Images

The problem on Europe’s doorstep

“We have until March, the summer maybe, for a European solution. Then Schengen goes down the drain.” — Unnamed German official tells Reuters that Berlin could shut its borders to immigrants from Syria and other places as that flow of people is expected to swell to huge levels once cold weather has passed. That official and others said that could be the beginning of the end of the European Union.

Random reads

Reuters

Glenn Frey and ‘The Eagles’ in June 30, 2011

Tributes flow as Eagles Founder Glenn Frey dies at 67.

Andy Murray says reports of match-fixing in tennis don’t surprise him.

Jada Pinkett Smith’s plans for an Oscar boycott go down badly with some.

Donald Trump’s bungled “Two Corinthians” Bible reference

Speaking of, the U.K. parliament debated whether to ban Trump from entering the U.K. and called him a wazzock.

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Author: Red