Thursday, August 28, 2014 9:08 a.m. BEFORE the OPEN
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Daily: Boiling down fundamental, technical, economic,
monetary, fiscal, psychological, and seasonal data into a quick read.
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SUMMARY:
If 2,000 on the S&P 500 is a floor, another sharp spike up will occur before a sharp correction.
If 2,000 is a ceiling, a less dramatic correction will develop shortly.
Either scenario should find support around DJIA: 16,560; S&P 500: 1,942; Nasdaq Comp.:4,415, a bit higher for scenario #1.
The size of a correction depends mostly on whether the investment news environment changes much as stocks are falling.
What was going to be a 4% correction can easily become a 6% – 8% correction if the news environment worsens significantly along the way. Within reason support levels are “readable, but only if nothing changes.
It seems to me the Street is getting a little indifferent about technical risk here, expecting any attempt to pullback to be met with buyers.
WHAT ARE THE ODDS OF A BIG CORRECTION – 8% -12% ?
I think the odds are getting greater every day.
Why ?
A major correction isn’t factored into many of the Street’s scenarios. After all the economy is gaining traction, and the Fed isn’t expected to raise interest rates until mid-2015.
Outlooks can change quickly, doubts and uncertainties can snowball. Careful !
TODAY:
This Bull Market has thumbed its nose at some huge problems, one’s much Thursday, August 28 , 2014 9:08 a.m. BEFORE the OPEN
bigger than those faced today. But that was with the market averages at much lower levels.
Pre-market trading suggests a soft open. Failure to follow through on tye downside in the first hour of trading raises odds of one more attempt to top the S&P 2,000 level.
Failure indicates a correction now. A successful penetration indicates a spike upward with a correction to follow a little later.
Investor’s first read – Daily edge before the open
DJIA: 17,122
S&P 500: 2,000
Nasdaq Comp. 4,469
Russell 2000: 1,172
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INTERNATIONAL TENSIONS:
While a major military undertaking by the U.S. in the Mid-East would have political consequences here, it does appear the stage is being set for a serious campaign to stop the Islamic State’s advances. A coalition is being formed and the news media is beginning to warn of a threat to our homeland if the Islamic State isn’t stopped !!!
The unpopularity of an increased military operation in the Mid-East and uncertainties of how far it will extend is a negative that is not yet discounted in stock prices.
Uncertainty persists in Ukraine as pro-Russia rebels opened up a third front outside strongholds of Donetsk and Luhansk near the Sea of Azov, suggesting this is far from over regardless of what Russia’s President Putin says.
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Looks like the Street likes what Fed Chief Yellen had to say at Jackson Hole last week. She still believes the labor markets have further to heal before their economies can handle higher interest rates.
Obviously, the Street finds security in Yellen’s assurance its zero-based interest rate policy is not changing near-term, but that comfort will be short lived if the economy continues to gain traction.
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TECHNICAL ANALYSIS OF EACH OF THE 30 DOW INDUSTRIALS (8/25)
At key junctures, I technically analyze each of the 30 Dow industrials, then using the Dow’s “divisor” convert these results back into the DJIA. I seek a near-term resistance level and a primary and secondary support level.
As of Aug 22, the near-term resistance level is 17,175; the primary support is 16,870 and secondary support is 16,724.
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INTEREST RATES: On numerous occasions, I have reminded readers that stock prices can rise along with interest rates, but to a point where higher rates draw money away from stocks to bonds and where higher rates adversely impact the economy. Realistically, that point must be a lot higher than the zero-based interest rates existing today. I conceded that the stock market would take a brief hit when a move to higher rates was perceived by the Street, but stabilize before moving higher.
A recent study by Andrew Garthwaite, chief equity strategist for Credit Suisse concludes just that. Since 1977, he found the S&P 500 peaked no earlier than four months prior to the Fed’s first rate increase, but gained as much as 4 percent in the six months after the first increase. He notes, that while rate rises have increased volatility in the stock market, they did not mark the end of the bull market.
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THIS WEEK’s ECONOMIC REPORTS:
Big week for reports in all areas. For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”
MONDAY:
Chicago Fed. Nat’l Activity (8:30) Index rose sharply to 39 in July from 21 in June.
PMI Services – flash (9:45): Flash reading is 58.5 in Aug. vs 61.0 in July.
New Home Sales (10:00): July’s annual rate is 412,000, vs. consensus range of 415,000 – 455,000.
Dallas Fed. Mfg, (10:30): Index dropped in Aug. to6.8 from 19.1 in July; New Orders dropped to 2.2 from 13.2
TUESDAY:
ICSC Goldman Store Sales (7:45): Up 0.6 pct. in Aug. 23 week; Year/year is +4.2 pct.
Durable Goods (8:30)): Aircraft sector bumped orders up 22.6 pct in July vs. gain of 2,7 pct. in June. Ex transport, orders were up 0.8 pct.
FHFA House Prices (9:00): June up 0.4 pct. vs increase of 0.2 pct May; Year/year + 5.1 pct.
S&P Case-Shiller (9:00): June down 0.2 pct vs. increase of 0.3% May; Year/year +8.1 pct.
NOTE: The reason for the difference between the two is (in short) that FHFA covers 13 more states and hundreds more smaller cities and uses home sale prices and refi appraisals.
Consumer Confidence (10:00): Aug. index up to 92.4 from 90.9 in July.
Richmond Fed. Mfg.(10:00) Aug. index up 5 points to 12; New orders up 8 points to 13.
State Street Investor Confidence (10:00): Up 7 points in Aug. to 122.8
WEDNESDAY:
MBA Mtge Purchase Apps (7:00): Rose 0.3 pct. in Aug 22 week; year/year down 11.0 pct. Refi’s up 0.3 pct – average rate for conforming loan ($417,000) is 4.28%)
THURSDAY:
Jobless Claime (8:30): Down 1,000 to 298,000 for 8/23 week
GDP(8:30): 2nd estimate is +4.2% for Q2
Coprporate Profits (8:30):
Pending Home Sales (10:00)
Kansas City Fed Mfg. Ix.(11:00):
FRIDAY:
Personal Income/Outlays(8:30):
Chicago PMI (9:45)
Consumer Sentiment (9:55)
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RECENT POSTS:
Aug. 11 DJIA 16, 553 Rebound to Good News – How Far ?
Aug. 12 DJIA 16,569 News Whipsaw – Watch Your Back !
Aug. 13 DJIA 16,560 Rally ? Be Very Careful !
Aug. 14 DJIA 16,651 Better Off Now than in October 2007 ?
Aug. 18 DJIA 16,662 All Eyes on Fed at Jackson Hole Thursday
Aug. 19 DJIA 16,838 Increasing Speculative Fever
Aug. 20 DJIA 16, 919 Is Market Now Vulnerable to Bad News ?
Aug. 21 DJIA 16,979 S&P 2000 to Trigger Selling
Aug 22 DJIA 17,039 Will Street Sell When S&P 500 Breaks 2,000 ?
Aug 25 DJIA 17,001 Stronger Economy – a Game Changer for Fed ?
Aug 26 DJIA 17,076 Bull/Bear Tug of War at S&P 2000 Level
Aug 27 DJIA 17,122 Market poised for Sharp Move
A Game-On Analysis, LLC publication
George Brooks
“Investor’s first read – a daily edge before the open”
Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is 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. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
