One of the dominating drivers of this 54-month bull market has been the relentless buying by institutions. They bought stocks as they were rising, but especially as they were falling.
Corrections were limited to a crisis of one sort or another, but recovery was always dramatic.
For the near-term, we must look for a change in trading character, one where a drop in prices is NOT met with enough buying to reverse the decline and drive it to new highs.
This would permit stocks to pull back further, which in turn would prompt new selling, ergo a meaningful drop in stock prices.
Money managers have continually looked to inaction by the FRB, (no change in QE) as security that they could keep buying. Bad, or ho-hum, economic news was seen as good news.
Well, Fed policy is about to change, as is the chairmanship of the FRB. The Street is going to have to adjust , not just for this change, but for speculation about subsequent ones thereafter.
I think the Street will be making that adjustment in coming months.
It’s ironic, and silly, that the Street would opt for QE over increased traction by the economy. But the weaning process is beginning.
I expect a decline into early October. Whether that has already started or will start from higher levels is still a question. Monitoring the trading character of the market will help confirm when the decline starts, and if my assessment has merit, or not.
I think odds are great enough for a drop of 8% – 10% to warrant profit taking in stocks that have had a good run, as well as to raise cash that would enable one to buy-in at lower prices. That is a decision thqt has to be based on one’s tolerance for risk.
TODAY:
Buyers charged in yesterday at the open and at mid-day, but ran into sellers at DJIA 15,525 (S&P 1,700). The S&P 1,700 level is seen by many technicians as “key,” to the direction of the market. If enough computers are programmed to think so, it will have significance (for a while).
I think the 9%, 28-day surge, starting June 24 was artificial, prompted solely by a bunch of FRB governors who hit the speaker circuit to assure the Street taper wasn’t the same as tightening immediately after Fed chief Bernanke said taper would start in Q4 and end in mid-2014.
Their action reversed a correction in both bond and stock markets. The Fed should have let the market digest a Fed policy change then and there.
As a result, we may have gotten a false read on the market. That bothers me.
The BULLS need a break above DJIA 15,555 (S&P 500: 1,700) today to hold off a further correction.
A break above S&P 500’s 1,700 would trigger a buy in a host of computers and a sharp rise in the market today, though beyond that is uncetain. Failure to sustain a rise over 1,700 would be bearish.
Look for an initial drop to DJIA 15,460 (S&P 500: 1,690) followed by an attempt to penetrate the market’s resistance levels.
Investor’s first read – an edge before the open
DJIA: 15,498.32
S&P 500: 1,697.48
Nasdaq Comp.: 3,669.12
Russell 2000: 1,049.17
Friday, August 9, 2013 (9:12a.m.)
TECHNICAL OBSERVATION – STOCKS:
Alert: I have successively accomplished my goal of helping readers navigate through the plunges in both AAPL and FB and subsequent recoveries. .I may soon drop coverage and either pick up other fallen angels, or begin the technical tracking of stocks on the move. That said, I am adding IBM. It is struggling, but has the potential of becoming short-term unpopular just like AAPL and FB. There is the possibility the stock may present an exceptional buying opportunity on an unexpected plunge below $180 to a bottom in the low $170s. It is so widely held, the chances are good there will be more sellers than buyers for months, ergo a lower price. NOTE: These comments are based solely on “technical” analysis with no regard for “fundamentals.”
Apple (AAPL: $461.01)
Broke support at $462 and slid to $457 before stabilizing
Today: Again,AAPL found support near $462. Unlikely, but possible, would be a quick plunge to $452 in face of further market weakness. Without news, AAPL is likely to bump along sideways. Resistance begins at $464.
FACEBOOK (FB – $38.54)
Resistance at $39 is beginning to develop, but can be topped with some high volume buying that would lead it into the low $40s.
Sfter its surge from the mid-20s, FB should consolidate with support in the $35 – $36 area.
IBM ($187.93)
No change from yesterday which noted IBM is still under pressure following a downgrade by Credit Suisse, Big boo is trying to stabilize above $188, but the exodus here stands to break it lower to $182. Foreseeable risk is $174. Institutions may simply sell to free up cash for other stocks with more immediate potential. Each point down impacts the DJIA by about 13 points.
I DO NOT OWN, NOR HAVE I EVER OWNED APPLE, FB or IBM.
ECONOMY:
A light week for reports on the economy is shaping up with today’s ISM Non-Manufacturing Index coming at 10 o’clock the highlight. The service industry accounts for close to 90% of our economy. The Fed’s Richard Fisher speaks today at 11:45, Charles Evans tomorrow at 9:30, Charles Plosser Wednesday at 12:30, and Sandra Pianalto at 1:40.
HOME BUYER BUYING PANIC ?
Mortgage rates rising, home prices rising, inventories decreasing !!
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
MONDAY:
ISM Non-Mfg. Ix, (10:00): July came in at 56.0 vs. 52.2 in June and a forecast of 53.1
TUESDAY:
International Trade (8:30) Non-oil contributed to big drop in trade gap to $34.2 bil from a revised $44.1 bil.
JOLTS (10:00) – Job Openings and Labor Turnover-Designed to be an improve over unemployment rate. BLS survey based on employment, job openings, quits, layoffs, discharges, etc. The number of “unfilled” jobs – used to calculate job openings rate is a measure of the unmet demand for labor. June was 3,936 mil. Vs. 3,907 mil May. Job openings unchanged
WEDNESDAY:
Consumer Credit (3:00p.m.): Proj.: $15 billion
HURSDAY:
Jobless Claims(8:30) Rose 5,000 for week ended 8/2. July is typically volatiole due to summer layoffs by auto industry.
FRIDAY:
Wholesale Trade (10:00) Proj.: +0.4 pct.
www.mam.econoday.com .
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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.
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