Friday, August 15 , 2014 11:45 a.m.
SUMMARY: Delayed today due to computer problems
A continuation of the market’s three-day advance was stopped in its tracks this morning by reports of an escalation of military conflict in the Ukraine.
This highlights the dangers of a news whipsaw market where a single piece of news can reverse the direction of the market.
If the report is true, the market will continue down. If it is reported that the news of an escalation is unfounded, the market will rebound.
There is little an investor can do, except maintain a cash reserve and be careful not to chase a stock that has moved up sharply.
It appears that the Street believes the U.S. economy can survive even if Europe’s economies are adversely affected by the sanctions on Russia.
But, we have to assume this will be a news sensitive market, ergo subject to an abrupt reversal at any time.
Obviously, the real issue is the economy’s ability to gain increased traction going forward and subsequently the ability of U.S. corporations to expand results at the top line, as well as bottom line where “financial engineering” has contributed significantly to results.
But, for the time being, the “news” factor will rule.
TODAY:
Today’s downside depends on Russia’s reaction to Ukraine’s destruction of Russian equipment that reportedly crossed the border today, but uncertainty leading into the weekend will magnify concerns and adversely impact prices more so than if this happened during the week.
Near term, there is some support at DJIA 16,520; S&P 500: 1,934; Nasdaq Comp. 4,404.
Investor’s first read– Daily edge before the open
DJIA: 16,713
S&P 500: 1,955
Nasdaq Comp.:4,453
Russell 2000: 1,143
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HOW DO WE MEASURE THIS BULL MARKET’S ADVANCE ?
The DJIA has advanced 160% (the S&P 500: 194%) through August 14.
But the base point for calculating that advance was March 2009 from DJIA 14,279 (S&P 500: 666) and came after an unprecedented bombardment of unthinkable events, including failures and bailouts of the Street’s most prestigious names: AIG, Lehman Bros., Merrill, Wachovia, Washington Mutual, F.Mae and F. Mac, etc. and a global scramble for survival. A total meltdown appeared imminent between September 2008 and March 2009, panicking investors and crushing stock prices beyond reason.
The final bear market plunge from DJIA 9,000 (S&P 500: 970) to DJIA 6,440 (S&P 500: 666), a drop of 28.4% and 31.3% respectively, was driven by pure hysteria.
While I am stretching the rules of technical analysis a bit here, there is merit in the concept that the final plunge was so emotionally charged, a more reasonable base for the bear market bottom would be DJIA 9,000 (S&P 500: 970) where the market began to fall apart in October 2008.
Based on that assumption, the DJIA would have advanced 85% (S&P 500: 101%) through August 14, 2014, not 160% and 194% respectively. Put another way, that whole panic zone serves as the base for a bear market bottom, not the actual lows, owing to the extreme nature of events that produced the crunch.
Conclusion: While not cheap, stocks are not as over priced as the doomsters think.
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IS the ECONOMIC RECOVERY FAILING TO GAIN TRACTION ?
Depends on who you ask. A.Gary Shilling, publisher of “INSIGHT” * challenged government press releases in an August 4, Special Report, “After the Government Report Releases.”
Among the first to warn readers in advance of the Great Recession, Shilling was quick to point out that the July 30, Q2 GDP report of an annualized gain of 4.0% was misleading with 1.66 percentage points attributed to a change in inventories, bringing the growth number down to 2.3%, a rate he feels is not great enough to “spawn meaningful growth in wages and labor income.” Excess inventories that are not worked off by sales penalize future production.
He attributes last week’s plunge in the stock market to the Street’s concern that the economy is not rebounding.
If he is right, the question arises, Will the Fed have to revise its taper schedule ?
THE FED:
We will hear more cautionary comments from the Fed going forward in an attempt to ease an interest rate hike when its reality hits early next year. The Fed does not want speculative fever to run rampant prior to the rate increase.
The Fed’s “easing in” policy is bad news for those who want the feeding frenzy to continue unabated, but good news for investors who opt for a more stable market and an inevitable crunch instead of crash.
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TECHNICAL ANALYSIS of 30 DOW JONES INDUSTRIALS
(UPDATED ANALYSIS: AUGUST 8
At key junctures, I technically analyze each of the 30 Dow industrials seeking a reasonable near-term support and a more extreme support leyel, as well as a short-term resistance level. By technically studying the balances of buying and selling in each stock, then converting that data back to the DJIA using the “divisor” (0.1557159) I can get a better reading on the average itself. The DJIA is a price-weighted average and subject to distortion by higher priced issues.
After yesterday’s crunch, Iran my analysis based on the July 31 closeand concluded the near-term upside for the DJIA HAS DROPPED TO 16,765, a reasonable downside from here is 16,391 and more extended downside risk to 16,264.
Note: My daily support/resistance levels are more short-term oriented
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THIS WEEK’s ECONOMIC REPORTS:
Not too much happening this week with economic reports.
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.”
TUESDAY:
NFIB Small Business Optimism Ix. (7:30): Index improved to 95.7 in June from 95.0 in May
ICSC Goldman Store Sales (7:45): Dropped 1.4 pct. in Aug 9 week: Year/year +3.2 pct. vs. +4.1 pct week prior.
JOLTS – Job Openings Labor Turnover (10:00): There were 4.671 million job openings in last week of June vs. 4.577 million in May. Both the hires rate (3.5%) and separations rate (3.3%) were essentially unchanged.
WEDNESDAY:
MBA Purchase Apps (7:00): Down 1.0 pct. in Aug. 8 week, same as week before Year/year down 10 pct.. Refi’s down 4.0 pct.
Retail Sales (8:30): Flat in July after a 0.2 pct. gain in June
Business Inventories (10:00): Business inventories rose 0.4 pct. in June; sales rose 0.3 pct, but stock-to-sales ratio remained unchanged at 1.25. Retail inventories rose 0.5 pct. but sales trailed with a gain of only 0.2 pct., bumping the stock-to-sales ratio up one point to 1.42.
THURSDAY:
Jobless Claims (8:30): increased 21,000 in the Aug. 9 week to 311,000
Impost Export Prices (8:30): Import prices fell 0.2 pct. in July
FRIDAY:
PPI-FD (8:30): Slowed to a plus 0.1 pct. in July from a jump of 0.4 pct in June.
Empire State Mfg Ix. (8:30): Index dropped to 14.69 in Aug. from 25.6 in July. New Orders were 14.14 vs. 18.77 in July
Industrial Prod. (9:15):July was up 0.4 pct. vs a gain of 0.4 pct. in June
Consumer Sentiment (9:55): Index dropped sharply in Aug to 79.2 from 81.8 in July
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RECENT POSTS:
July 30 DJIA 16,912 Market on the Verge of Big Move ?
July 31 DJIA 16,880 Huge Test for Bulls
Aug. 1 DJIA 16,563 False Alarm, or ………
Aug. 4 DJIA 16,493 Trader’s Buy, but Risks are High.
Aug. 5 DJIA 16,569 Bulls “Must” Step In Now, or…….
Aug. 6 DJIA 16,429 Is The Economy Really Rebounding ?
Aug. 7 DJIA 16,443 Rally to Give Investors a Good Read on Near-Term
Aug. 8 DJIA 16, 368 News Whipsaw = Increased Volatility
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 ?
*www.agaryshilling.com
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.
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