Friday’s rally failure will be tested again as the market attempts to rally today. Another failure suggests a correction.
The Fed can’t keep up a zero interest rate policy indefinitely. The Street should know that. Rising stock prices should be able to co-exist with rising interest rates to a point.
I don’t see an end to this bull market yet. Corrections, yes, but not a top.
A correction would occur if the economy does not bounce back when this spring when the winter weather lifts. Obviously, if the Russian/Ukraine situation worsens significantly, the market would take a hit.
Near-term risk is now DJIA 16,225 (S&P 500: 1,858)
Resistance starts DJIA: 16,406(S&P 500: 1,882)
Fed chief JanetYellen said in her press conference last week that the Fed’s stimulus program could end this fall and benchmark interest rates could rise six months later, which places a rise in rates in the spring of 2015 rather than the second half of 2015.
She also said the Fed was abandoning its threshold target of an unemployment rate of 6.5% for qualitative analysis of a broad range of data, including labor market conditions, inflation expectations and financial markets.
The Fed’s new target interest rate would be 1% at year-end 2015 and 2.25% at year-end 2016.
Additionally, she announced another $10 billion taper to$55 billion.
The only thing new here is the timing of a rise in interest rates, several months ahead of expectations.
At first the market plunged, then it rallied, but Thursday was followed by a rally failure Friday after a big spike in early trading – not good.
A word of caution. Initial responses can be deceiving, since institutional investors tend to crunch numbers in response to important changes in conditions. It is possible, they may consider an earlier change in interest rates as
Investor’s first read– a daily edge before the open
S&P 500: 1,866
Nasdaq Comp.: 4,276
Russell 2000: 1,193
Monday, March 24, 2014, 9:14 a.m.
a negative and sell down to a level they think discounts the timing of the rise.
Manufacturing output , new orders and exports are up for the eighth consecutive month, suggesting its recovery is real, though not yet robust. Our economy has
scratched and clawed its way out of a horrendous recession without help from Europe. Obviously, a recovery there stands to accelerate the pace of our recovery here.
On Friday, Russian lawmakers considered legislation, allowing it to incorporate areas in other countries where residents want to secede in face of a dysfunctional central government. While commentary suggested this only applied to Ukraine, who knows for sure at this point ?
Russian nationalism is running high in Crimea and it can spread to other parts of Ukraine even countries that were once satellites to Russian control.
This suggest to me a risk of civil wars breaking out in countries where the Russian language is spoken.
For now this represents an uncertainty for investors, but that could change for the worse, and there is little the West can do about it. No one wants to fight a land war next door to Russia, and Mr. Putin knows it.
Sanctions are about the only deterrent the West has, but Russia has cards to play other than military, since it has economic ties to Europe, especially Germany.
But the price Russia will pay is steep – Its Micex stock index is down 11.6% this year, compared with a drop of 4.8% for the MSCI Emerging Markets Index; S&P and Fitch cut their outlook on Russia’s credit ratings to negative from stable, a downgrade is possible next; Russia may enter a recession in Q2 or Q3; the ruble has plunged; Russia’s borrowing costs have risen.*
This is not over, be forewarned.
TECHNICAL ANALYSIS EACH OF 30 DOW STOCKS:
At key junctures, I technically analyze each of the 30 Dow Jones industrials for a reasonable near-term downside and a more extreme downside, as well as a near-term upside potential. I note the price for each, add them up and divide by the DJIA divisor (0.1557159) and arrive what the DJIA would be if each of the 30 stocks hit my targets.
As of Thursday’s close I concluded a reasonable near-term downside for the DJIA was 15,900, a more severe near-term downside would be 15,625. The near-term upside would be 16,511. That’s all assuming the overall news environment doesn’t change.
HOUSING STOCKS –
As spring approaches, the Street will be dissecting every morsel of economic data in search of how much of the recent slowdown in the economy is attributable to severe weather.
A logical place to snoop is the housing industry and stocks since they should firm up before the industry stats confirm expectations.However the industry stats aren’t showing a rebound, though more homes are coming on the market (2.00 million in March vs. 1.88 million in February.
On February 17, I began tracking the following housing industry stocks reasoning that buying by pros more in-the-know than I would give a heads-up on a general rebound in the economy when a break in the weather prompts consumers to emerge from the warmth of their homes.
If these stocks rose in face of bad news, it stands to reason the severe weather was masking underlying strength. If the stocks plunged it would be confirmation the weakness was real.
The group got its first piece of good news on February 26 when January New Home Sales were reported to have jumped 9.0%. Housing stocks rallied sharply for eight days then gave it all back when the market sold off sharply,
Housing stock prices stabilized last week then jumped sharply Wednesday after February Starts rose 7.7% vs. a decline of 4.6% when KB Homes earnings beat projections for Q1 coming in At $0.12 vs. a loss of $0.16 a share.
Beazer Homes(BZH: Friday, Feb. 14 – $21.26): Friday’s close: $20.65
PulteCorp(PHM: Friday, Feb 14: -$20.02): Friday’s close: $19.11
Toll Brothers (TOL: Friday, Feb. 14 – $37.79): Friday’s close: $35.72
KB Homes(KBH: Friday Feb. – $19.03):Friday’s close: $17.79
DR Horton(DHI: Friday, Feb. 14- $23.62): Friday’s close: $21.42
CONCLUSION: Strength in the above housing stocks, the second time in a month suggests the Street wants to pounce, it just needs an opening.
Their rally Wednesday was cut short by Fed chief Janet Yellen’s comments in her 2:30 press conference that interest rates can be expected to rise when the Fed’s taper ends in the fall. Another jump in housing stock prices would indicate confidence that this crucial sector will continue to benefit, even, lead the economic recovery.
BUT, these stocks failed to respond Thursday and Friday, suggesting doubts that the industry is attracting buyers, not a good omen. Perhaps they need more time. Tuesday will feature reports on housing prices and New Home Sales and Pending Home Sales on Thursday (see below “Economic Reports.”)
THIS WEEK’s ECONOMIC REPORTS:
The economic calendar features important reports reflecting trends in manufacturing and housing.
These reports may still be adversely impacted by severe weather conditions.
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.”
Chicago Fed. Nat’l Activity Ix. (8:30):
PMI Mfg. Ix. (9:45):
ICSC Goldman Store Sales (7:45)
FHFA House Price Ix. (9:00)
S&P Case-Shiller House Price (9:00):
New Home Sales (10:00)
Consumer Confidence (10:00):
Richmond Fed. Mfg, Ix, (10:00):
State Street Investor Confidence Ix.(10:00):
MBA Purchase Apps (7:00):
Durable Goods (8:30):
PMI Services –flash (9:45):
GDP(8:30):The last estimate was a downward revision of 2.4 pct. down from the advanced estimate of 3.2 pct. vs. Q3 of 4.1 pct, all annualized rates.
Jobless Claims (8:30):
Corporate Profits (8:30):
Pending Home Sales (10:00):
Kansas City Fed Mfg< Ix, (11:00):
Personal Income/Outlays (8:30):
Consumer Sentiment (9:55):
Mar 7 DJIA 16,421 Pivotal Day in the Market
Mar 10 DJIA 16,452 Important Test for the Bulls Today
Mar 11 DJIA 16,418 Gold Due For a Play ?
Mar 12 DJIA 16,351 Crimea – How Big A Negative for Stocks ?
Mar 13 DJIA 16,340 Correction to Set Up An Opportunity
Mar 14 DJIA 16,108 Selling Climax Next Week ?
Mar 17 DJIA 16,065 Rally Failure Risk, But Trader’s Buy Looms
Mar 18 DJIA 16,247 Market Vigil – Economy and Russian Nationalism
Mar 19 DJIA 16,338 A Spring Break for the Economy ?
Mar 20 DJIA 16,222 Fed Reality – Market Up, or Down ?
Mar.12 DJIA 16,331 Yellen, Putin, Economic Freeze, Quadruple Witching Friday
A Game-On Analysis, LLC publication
George Brooks, Sole Member,Manager
“Investor’s first read – an edge before the open”
The writer of Investor’s first read, is 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 investment advice or 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. Brooks may buy or sell stocks referred to herein.