Breakout and Run - Followed by a Crunch

George Brooks |
WednesdaySeptember  3 , 2014     9:08 a.m.  BEFORE the OPEN
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TODAY:
    The benchmark S&P 500 has failed to punch through the 2,000 in each of the last six days.  Last Thursday, I questioned whether 2,000 was a floor or a ceiling, and yesterday I gave the bulls a slight edge.
     With Nasdaq’s breakout yesterday, odds in favor of the Bulls increase even more. Pre-market trading suggests a firm open today.
     International tensions have put a damper on the market, but the U.S economy has offered some positive news to offset those negatives – somewhat. The ISIS crisis and uncertainty in Ukraine will most likely worsen.
    The question for money managers here is, just how much more can they expect to wring out of new commitments without encountering undue risk ?
     I can see a great enough chance of a spike up in coming weeks, as I see a high risk for a September/October crunch,  a sudden plunge as buyers simply fail to show up to prop the market, and sellers panic.
Investor’s first readDaily edge before the open
DJIA: 17,067
S&P 500: 2,002
Nasdaq  Comp. 4,598
Russell 2000:  1,179
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WHAT ARE THE ODDS OF A BIG CORRECTION OF  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, andthe Fed  isn’t expected to raise interest rates until mid-2015.
Outlooks can change quickly, doubts and uncertainties can snowball. Careful !
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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. 
    Overnight, Ukraine President Petro O. Poroshenko  announced an agreement with Russia’s President Vladimir V. Putin for a cease-fire, though no news was forthcoming from  the pro-Russian separatists in eastern Ukraine. Since Russia denies an involvement in Ukraine, the agreement is suspect.
    Bottom line: tensions eased for now.
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TECHNICAL ANALYSIS OF EACH OF THE 30 DOW INDUSTRIALS (8/29)
   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 29, the near-term resistance level is 17,312; the primary support is 16,973 and secondary support is 16,698.
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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, especially employment. 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:
PMI Mfg Ix. (9:45): Aug. index up to 57.9 from 55.8 in Jul.
ISM Mfg. Ix. (10:00):  Aug index up to 59 in Aug. from 57.1 in July; New orders 66.7 vs 63.4.
Construction Spend (10:00): Up 1.8 pct. in July decline of 0.9 pct. in June.
WEDNESDAY:
MBA Purchase Apps/Refi’s (7:00):Still  down 12.0 pct.week- down 0.2 pct. in Aug 29 week; Year/year
ICSC Goldman Store Sales (7:45): Unchanged in Aug. 30 week; Year/year + 4.8 pct.
ADP Employment Rpt (8:15)
Factory Orders (10:00):
THURSDAY:
Int’l Trade (8:30):
Productivity/Costs (8:30):
Jobless Claims (8:30):
PMI Services Ix. (9:45):
ISM Non-Mfg. Ix. (10:00):
FRIDAY:
Employment Situation (8:30):
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RECENT POSTS:
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   17,106  Market poised for Sharp Move
Aug  28  DJIA   17, 122 2,000 on S&P 500 – Floor or Ceiling ?
Aug 29   DJIA   17, 079 How Long Will Bulls Prop the Market ?
Sept.  2   DJIA   17,098  What are Odds of 8% - 12% Correction ?
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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