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Market Says "Deal" - A High Risk Bet

By  +Follow October 16, 2013 6:21AM
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On October 3,  I said the Oct. 17 debt ceiling deadline would be breached, but a deal would be reached the following weekend, the 19th and 20th.I reasoned that Treasury Secretary Lew can find ways to stretch the deadline several days without defaulting.

   I still don’t believe an agreement will be reached until this weekend.  While that breaches the deadline, it won’t trigger  default, but  it could trigger a downgrade  in the U.S. credit rating.

  So far, the stock market is telling us a debt ceiling agreement will be reached without default and by tomorrow.

   Usually, the stock market is an accurate barometer of things to happen, rising or falling before news breaks.

   In my October 3 post, I said I expected the DJIA to hit 12,760 intraday (S&P 500: 1,430) on the Friday, October 18, after the deadline was missed, creating big buying opportunity.

   Based on the market’s behavior in recent days, a decline of that magnitude is doubtful – possible, but a real stretch.

   CONFIDENCE is the cornerstone and driver for the level of stock prices.  I don’t see what is happening in Washington contributing to confidence.  Add to that, the prospect for unimpressive Q3 earnings, and this market is approaching overvaluation.

   I still believe this bull market has further to run, but not in a straight line.

   If the stock market is going to have a negative reaction to default or prospective default, it will be sudden and brutally swift.  If one of the big institutions breaks ranks and dumps stocks indiscriminately, the rest will follow, triggering the  market circuit breakers along the way.

   Just be aware this CAN happen.

   In a matter of days, investors who are comfortable buying stocks, will become petrified at the prospect, a sign that it may be a good time to step in, even though human nature is screaming at you not to.  We’ll see.

TODAY:  Depends on breaking news – conclusive or projected.

Without concrete news, odds favor a range for the DJIA of 15,285 and 14,980, and  1,709 and 1,678 for the S&P 500.

   The market will open on the upside, but must be watched for a rally failure. Obviously, it will be driven by the news whipsaw.

Investor’s first readan edge before the open

DJIA:  15,168

S&P 500:   1,698

Nasdaq  Comp.:  3,794

Russell 2000:  1,079

Wednesday, Oct. 16, 2013     (9:16 a.m.)

STOCKS OF GENERAL INTEREST:

Note:  Currently, there is the potential for sharp moves in stocks in response to developments in Washington. Under these conditions, support/resistance levels are  suspect.

I have added a “debt ceiling crisis” risk level for some stocks, a price where these stocks could drop to if the debt ceiling decision goes down to the wire and fear escalates. The following are based on technical analysis only and  are not to be taken as buy or sell recommendations, but one of many factors that must be considered in the decision process.

Apple (AAPL: $498.68) Positive.

Stock is emerging from a 15-day consolidation, broke through $500  to $502 yesterday before slipping back along with the overall market.. Given a stable market, AAPL can run to $509 - $510 near-term..  Support is $496 - $498. Debt ceiling crisis could take it down to $483.

Facebook (FB: $49.50) Positive, consolidation likely.

Raymond James downgrade  from strong buy to outperform may put a lid on FB with selling coming in early in the day when it briefly crossed $50. Could slip to $48.60.  Resistance is $50.

 IBM (IBM: $184.66)   IBM now  positive.

Late buying Friday was matched by buying  on early morning weakness to close at the high for the day, but uncertainties out of Washington spooked buyers and cut short its run toward $190.   What is needed here is for IBM to establish a base above $180   $182.

Pulte Homes (PHM: $15.54)  Positive

Its 18-day  down-channel is actually a “positive.” Actually, it is a “controlled” correction.  Given overall market stability, PHM can move up across $17. More instability suggests a test of  $15.28 low posted Oct. 9.

 

First Solar (FSLR:$43.75)  Positive

Ranges widely within  a trading day offering traders to exploit extremes. $43 should hold.  Resistance is $45.60.  Debt Ceiling crisis takes it to $40.75 - $41.65.

Target (TGT: $62.93) Neutral

Retail in general is  in question now and TGT is hearing footsteps.  Has had buyers in recent days, but  needs a push across $64 to improve the pattern.

Hewlett-Packard (HPQ: $22.79)  Neutral , but close to turning positive.  Distinct little “pennant formation could foreshadow  run to $25 - $26.

Support is $22.78.

EBAY (EBAY: $53.97) Positive.

Could run to $57 - $58, but not in this uncertain environment. Support is $53.  

Amazon (AMZN: $310.40) Positive.

Couldn’t break above resistance at $310.95 yesterday putting a move to $316 - $320 on hold.  Positive break in DC would do the job.

I do not own, nor am I short: AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.

 

ECONOMIC REPORTS:  No fewer than eight Federal Reserve officials speak this week during a  light reporting week shaping up. Some reports will be delayed due to shutdown, though Federal Reserve based reports and private sector reports won’t. The economy is not currently center stage, though the deadlock in Washington will hurt the economy and confidence and business decisions going forward.

   For a detailed account of past and current economic reports, including charts go to: mam.econoday.com - www.mam.econoday.com

WEDNESDAY:

Consumer Price Ix. (8:30)  PROJ.: Delayed due to shutdown

NAHB Housing Market Ix.(10:00)  PROJ.: Index for Oct.  58 unch from Sept.

Fed’s Fisher speaks 6:45)

THURSDAY:

Fed’s Fisher speaks (7:45)

Housing Starts (8:30) PROJ>: 0.913 million unit rate vs. Aug. rate of 0.891 million

Jobless Claims (8:30)Distorted due to shutdown  PROJ: 10/12: 330,000

Industrial Production (9:15)  Delayed due to shutdown

Philly Fed Svy (10:00)  PROJ.: 15.0 Oct.   vs  22.3 Sept. vs. 9.3 Aug.

Fed’s Evans speaks (12:45 p.m.)

Fed’s George speaks (1:45 p.m.)

FRIDAY:

Leading Indicators (10:00)

Fed’s Evans speaks(2:00 p.m)

Fed’s Stein speaks (4:30 p.m.)

 

 

Sep 20  DJIA   15,636   “Raise Cash for October Opportunity”

Sep 23  DJIA   15,451   “Can a Normal Correction Become a Bigger One ?”

Sep 24  DJIA   15,401   “Opportunity Looms as Storm Clouds Form”

Sep 25  DJIA   15,384   “Brinkmanship Starts – What to Do”

Sep 26  DJIA   15,237   “Street Not Worried – Yet  Should You Be ?”

Sep 27  DJIA   15,328  “Prepare for an October Buying Opportunity”

Sep 30  DJIA   15,258  “Makings of an October Buying Opportunity”

Oct  1   DJIA   15,129  “Now the Scary Part – the Debt Ceiling – Default ?”

Oct  2   DJIA   15,191  “Potential for a Deadline to  be Breached”

Oct  3   DJIA  15,133   “Debt Deal to Miss Oct.17 Deadline – Settle Over the

                                      Weekend – DJIA  Bottoms Oct 18,  12,760 (intraday)”

Oct 4   DJIA   14,996   “Weekend Proposal on Shutdown – a Head Fake ?”

Oct 7   DJIA   14, 936  “DJIA 12,760  if Oct. 17 Deadline Missed”

Oct 8   DJIA   14,936   “Don’t Chase This Week’s Rally

Oct 9   DJIA   14,776   “Don’t Buy A Debt Ceiling Solution Rally”

Oct 10 DJIA   14,802  “A Very, Very Dangerous Rally”

Oct 11 DJIA   15,126  “News Whipsaw Can Roil Stock Prices in Coming Days”

Oct 14 DJIA   15,237  “Fear of Default Returns – Trader Alert”

Oct 15 DJIA   15,301  “What If We Default ?  What If We Don’t ?

  George  Brooks

“Investor’s first read – an edge before the open”

This email address is being protected from spambots. You need JavaScript enabled to view it.

NOTE:  STOCK TRADERS ALMANAC: The new annual Stock Trader’s Almanac  is off the press.  This is a “must,” always has been, if you are a serious  investor, or intend to be a serious investor. Visit stocktradersalmanac.com for details

……………………………………………..

The writer of  Investor’s first read, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk. Brooks may buy or sell stocks referred to herein.

 

 

 

 

 

 

 

 

 

 

 

 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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By  +Follow October 16, 2013 6:21AM
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