Thursday, September 4 , 2014 9:18 a.m. BEFORE the OPEN
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Daily:Boiling down fundamental, technical, economic,
monetary, fiscal, psychological, and seasonal data into a quick read.
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TODAY:
A surprise economic stimulus move by the European Central Bank (ECB) is driving the euro down and stock prices up here and abroad. The ECB cut its refinancing rate, reduced its deposit facility rate , lowered its lending facility, and initiated the purchase of euro-denominated covered bonds in an effort to jolt European economies out of lethargy. While the U.S. economy continues to inch forward, it could use help from abroad.
Stocks are still hitting a wall on attempts to run higher, upping the risk that buyers will back off creating a vacuum for stock prices and the beginning of a nasty correction.
While the Nasdaq Composite broke out Tuesday, it failed to follow through, yet another warning sign.
This market should be able to spike up one more time before a correction, but sellers are putting a lid on it. While buyers have propped prices up at current levels, it’s all “air” beneath the market if they head for the sidelines.
Failure to hold a gain yesterday suggests buyers are losing steam. A repeat performance would signal trouble, short-term.
Bulls need to make a big push NOW.
Investor’s first read– Daily edge before the open
DJIA: 17,078
S&P 500: 2000
Nasdaq Comp.4,572
Russell 2000: 1,172
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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, and the 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 !!!
One issue not addressed yet is, how destabilizing is the Islamic State’s to Iran’s interests ?
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.
A 7-point plan to address the Ukraine/Russia conflict is expected to be presented Friday at a joint meeting of pro-Russia rebels and Ukrainian officials at Minsk, Belarus.
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.
Factory Orders (10:00): Boeing orders skewed July’s Factors Orders, triggering a 10.5 pct. rise; Ex-transport, orders dropped 0.8 pct..
THURSDAY:
Int’l Trade (8:30): July Trade deficit was $40.55 billion
ADP Employment Rpt (8:15) 204,000 jobs were filled in Aug. vs, 218 in July.
Productivity/Costs (8:30):
Jobless Claims (8:30): Dropped 4,000 to 302,000 in Aug. 30 week.
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 a Big Correction of 8% – 12% ?
Sept. 3 DJIA 17,067 Breakout and Run – Followed by a Crunch
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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