Tuesday, August 26 , 2014 9:18 a.m. BEFORE the OPEN
TODAY:
The S&P 500 crossed 2000, and ran into the resistance I expected. Even so, there was not enough selling pressure to turn the market down significantly.
This is a big week for reports on the economy (see calendar below). If the economy continues to gain traction, the Street will begin to worry about a Fed policy change and a bump in interest rates in Q1 rather than Q2 as is generally expected at this point.
The market should correct or consolidate August’s sharp gains, but is showing no willingness to do so yet. I expected institutions to use the volume generated by the S&P 500 crossing 2000, and yesterday’s market action suggests they did.
BUT, the Bears have not yet gained control, increasing the odds of another spike up.
Support today is DJIA 17,048; S&P 500: 1,994; Nasdaq Comp.: 4,555
Resistance today is DJIA:17,186; S&P 500:2,010; Nasdaq Comp.:4,580.
Investor’s first read– Daily edge before the open
DJIA: 17,076
S&P 500: 1,997
Nasdaq Comp.4,557
Russell 2000: 1,165
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INTERNATIONAL TENSIONS:
U.S. military activities will extend from Iraq into Syria and tensions in Ukraine will persist or escalate, even though Ukranian President Petro Poroshenko will meet today with Russian President Vladimir Putin in Minsk, Belarus.
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.
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Looks like the Street likes what Fed Chief Yellen had to say at Jackson Hole last week. She still believes the labor markets have further to heal before their economies can handle higher interest rates.
Obviously, the Street finds security in Yellen’s assurance its zero-based interest rate policy is not changing near-term, but that comfort will be short lived if the economy continues to gain traction.
Clearly, the labor market would benefit from a pickup in housing, which may be happening now. A surge in Housing Starts and the NAHB housing market index last week hints at that. New Home Sales will be announced at 10 o’clock today, house prices tomorrow, MBA mortgage purchase applications at 7 o’clock Wednesday and Pending Home Sales Thursday (see below).
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TECHNICAL ANALYSIS OF EACH OF THE 30 DOW INDUSTRIALS (8/25)
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 22, the near-term resistance level is 17,175; the primary support is 16,870 and secondary support is 16,724.
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 in all areas. 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.”
MONDAY:
Chicago Fed. Nat’l Activity (8:30) Index rose sharply to 39 in July from 21 in June.
PMI Services – flash (9:45): Flash reading is 58.5 in Aug. vs 61.0 in July.
New Home Sales (10:00):July’s annual rate is 412,000, vs. consensus range of 415,000 – 455,000.
Dallas Fed. Mfg, (10:30): Index dropped in Aug. to6.8 from 19.1 in July; New Orders dropped to 2.2 from 13.2
TUESDAY:
ICSC Goldman Store Sales (7:45): Up 0.6 pct. in Aug. 23 week; Year/year is +4.2 pct.
Durable Goods (8:30)): Aircraft sector bumped orders up 22.6 pct in July vs. gain of 2,7 pct. in June. Ex transport, orders were up 0.8 pct.
FHFA House Prices (9:00):
S&P Case-Shiller (9:00):
Consumer Confidence (10:00):
Richmond Fed. Mfg.(10:00)
State Street Investor Confidence (10:00):
WEDNESDAY:
MBA Mtge Purchase Apps (7:00):
THURSDAY:
Jobless Claime (8:30):
GDP(8:30):
Coprporate Profits (8:30):
Pending Home Sales (10:00)
Kansas City Fed Mfg. Ix.(11:00):
FRIDAY:
Personal Income/Outlays(8:30):
Chicago PMI (9:45)
Consumer Sentiment (9:55)
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RECENT POSTS:
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 ?
Aug. 18 DJIA 16,662 All Eyes on Fed at Jackson Hole Thursday
Aug. 19 DJIA 16,838 Increasing Speculative Fever
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 ?
*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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