I am not sure whether the Street is looking forward to Fed chief Bernanke’s speech after the close Wednesday, or not. It will be delivered “after” the close.
Now that the Street has become addicted to Fed stimulus, it is hard to cut the cord. It wants it both ways – continued stimulus, low interest rates and an improving economy.
Friday’s rise in stock prices came at the same time long-bond interest rates rose. That’s not how it is supposed to work, not at this stage of the stock price/interest rate cycle. Both can rise concurrently and have in the past until bonds offer investors an attractive alternative to stocks and where high rates crunch the economy. It’s the transition from rock bottom interest rates to higher rates (however small) that is bumpy.
The Fed would like to tiptoe out of QE without triggering any alarms. That is unrealistic.
Following Bernanke’s June 19 press conference when he said the Fed may taper its asset-purchase program by year-end and end it in mid-2014, assuming economic and job growth justifies it, interest rates jumped, and both the stock and bond market plunged.
Thanks to a half dozen FRB presidents, who were dispatched to calm fears of a disruptive exit, both markets have since rebounded.
What will Bernanke say this time ?
His address will be delivered after the close, instead of 2:30, that may be significant.
QE was designed to stabilize and eventually grow the economy, so a decision to taper out gradually should be a good sign for the economy and corporate earnings.
However, it is the fact the Fed would be changing that creates uncertainty and the markets must adjust for that.
And that’s not all !
We are entering one of four minefields the Street tries to tiptoe through every year – quarterly earnings reports.
DJIA 15,245 (S&P 500: 1,643) is possible today, but not without risk with odds favoring a continued saw-toothed, news whipsaw market.
Investor’s first read – an edge before the open
S&P 500: 1,631.89
Nasdaq Comp.: 3,479.37
Russell 2000: 1,005.39
Monday, July 8, 2013 (9:06 a.m.)
Apple (AAPL: $417.42)
A normal correction after a sharp up move. Near-term support is $411, $406 not out of the question. AAPL needs to establish a base here and attract more institutional support.
Odds favor AAPL has seen its lows for 2013, but it has had 5 false moves since its September 2012 high of $705. Minor support is now $412. Resistance starts at $432.
FACEBOOK (FB – $24.37)
Pattern is still positive, but a little more slippage likely with support now down to $24. A seller came in around $25 on June 19 and Monday. FB could slip below $24 in a soft market.
NOTE: Generally, I don’t recommend or comment on individual stocks. I started covering FB technically on May 21, 2012 after its IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.
I picked up AAPL late last year when it was in a tailspin with an objective of targeting a bottom. Both were widely followed, and I thought my input would help. I would like to add more stocks to my “technical” following, but the deadline nature of this letter , which is market-focused, make it difficult. That is still a possibility.
I do not own either AAPL or FB, nor have I ever owned them.
The Street is now faced with a choice – Is it hoping for disappointing reports and an increase in the likelihood that the Fed won’t back away from QE soon ? Or will it hope for upbeat reports, a sign that QE has been helping. It can’t have it both ways – For access to information including charts and graphics go to www.mam.econoday.com .
NFIB Small Business Optimism Report (7:30)Proj.: 94.7 (range: 93.5 – 95.5)
Job Openings and Labor Turnover -JOLTS (10:00) Proj for May 13: 3.8 mil
******FOMC Minutes (2:00)
******Bernanke speaks (4:10) !!!!!!!!
Jobless Claims (8:30) Proj. for July 6: 337,000 vs. 343,000 prior week.
Import/Export Prices (8:30) Proj.: +0.1%
Producer Prices (8:30) Proj. for June 13: + 0.5%
Consumer Sentiment (9:55) Proj.: July 13 84.1 vs. 84.5
RECENT POSTS: 2013
June 18 DJIA 15,179 “Fed Watch Whipsaw to Continue”
June 19 DJIA 15,318 “Exit – Bernanke ? QE ? More Uncertainty”
June 20 DJIA 15,112 “BIG Money – Buy Today ? Or Wait ?
June 21 DJIA 14,758 “Saw-Toothed Market Action Ahead”
June 24 DJIA 14,799 “News Whipsaw: Sharp Rallies/Plunges”
June 25 DJIA 14,659 “Fed Member Comments – Whipsaw in Action”
June 26 DJIA 14,760 “Market Keyed to News and Interest Rates”
June 27 DJIA 14,910 “Easy Does It !”
June 28 DJIA 14,910 “Can the Fed Calm Fears of Imminent Tapering ?”
July 1 DJIA 14,909 “So – What Happens When the Fed Does Taper ?”
July 2 DJIA 14,974 “Wall Street Looking to Friday’s Unemployment Report”
July 3 DJIA 14,932 “Fed Taper Watch Whipsaw to Continue”
July 5 DJIA 14,988 “Easy Does It at the Open”
“Investor’s first read – an edge before the open”
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.