This is one of those situations where you can be damned if you buy and damned if you don’t.
Here’s my point. I think the Fed erred by rushing in to stop the stock and bond market from finding a comfort level when both dropped sharply after Fed chief Bernanke’s June 19 comments about the Fed starting to taper by year-end and wrapping it all up by mid-2014.
When stock and bond markets plunged, at least a half dozen FRB presidents/officials countered saying it ain’t so.
The stock market got a further boost when in a Q&A session before the NBER on June 10, Bernanke backed away from his June 19 statement, emphasizing the Fed will maintain a highly accommodative monetary policy for the foreseeable future, that tapering is not tightening, and the Fed is nowhere near ready to raise rates.
At some point the Fed will begin to taper. The minutes from June’s FOMC meeting indicated half of its 19 participants wanted to halt $85 billion in monthly bond purchases by year-end.
If you buy based on Bernanke’s June 10statement, you may get blindsided by the correction that will come when taper becomes a foregone conclusion on the Street and traders and investors sells ahead of the actual announcement.
Selling based on the Fed reducing bond purchases may be premature, since the Fed appears to be quick to prevent a further rise in interest rates and consequently a drop in stock prices.
Bernanke testifies before the House Financial Services Committee beginning at 10:00 a.m. Wednesday and Thursday. Obviously, the Street will be parsing every word he says.
The release of Q2 earnings and proliferation of revised guidance and earnings projections for Q3 and beyond will begin to impact stocks near-term.
If these reports beat Street estimates, the market will soar.
We don’t know how the Street will interpret what Bernanke says Wednesday and Thursday, and obviously it is too early to get a good read on Q2 earnings.
While the market is up 6.5% in three weeks, there is a sense of panic and pressure to load up on stocks before the market soars even more. The financial press will hype every new high in the DJIA and S&P 500 however slight.
That’s a little scary.
We have been in a News whipsaw market for two months. Any negative at this point will stop the euphoria in its tracks.
The market looks like it will edge higher in anticipation Bernanke will assure Congress the Fed will continue to nurture the economy along until it gains enough traction to run without help.
Support is DJIA 15,315 (S&P 500: 1,660)
Apple (AAPL: $426.51)
Some selling came in Friday as AAPL tried to cross $430, with the stock dropping back as low as $423 before buyers entered at the close to stabilize its price. Resistance starts at $436, but the big hurdle will be its July 23d, Q3 earnings report which is expected to show no growth year over year.
Facebook (FB: $25.91)
While a seller showed up at the open Friday, FB was able to reverse the intraday trend and reinstate a positive pattern for the day indicating a chance of an attack on resistance now at $26.87.
While we will get some key economic reports this week, Fed chair Bernanke will be at center stage as he testifies before the House Financial Services Committee, in semi annual event.
Retail Sales (8:30) Proj.: +0.8 pct.
Empire State Mfg. Svy (8:30) Proj.: July 0.5 pct. Vs. 7.4 pct. June
Business Inventories(10:00) Proj.: No change
CPI (8:30) Proj.: +0.4 pt. Excl food/energy +0.2 pct.
Industrial Production (9:15) Proj.:+0.2 pct.
Housing Market Ix. (10:00) Proj.: 52.0 unchanged
Housing Starts (8:30) Proj.: June 0.951 million units vs. May 0.914 million units
*****BERNANKE before House Financial Services Committee (10:00)
Jobless Claims (8:30) Proj.: June 13 344,000 vs. June 6 360,000
Philly Fed Mfg. Svy. (10:00) Proj.: 9.0 vs. 12.5 in June
Leading Economic Indicators (10:00) Proj.: +0.3 pct.
Investor’s first read - an edge before the open
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