Tuesday, September 9 , 2014 9:08 a.m. BEFORE the OPEN
SUMMARY:
The jury is still out on which way this market is headed in coming weeks. Friday’s market action suggested underlying strength, but there was no follow through yesterday.
Money managers seem content with nibbling, but not with buying aggressively in face of uncertainties in the Ukraine and Iraq/Syria. The mid-term elections are only eight weeks away, and will become more and more important in coming weeks.
Then too, the Street will want to see if the ending of the Fed’s QE in October has any adverse effect on the economy, and will want to gain a better read on when to expect an increase in interest rates.
There are enough uncertainties to prompt some selling here, or at least to discourage buying.
But, all that may be trumped by the Street’s outlook for earnings over the next six-to-nine months. Its outlook is the potential source of another surge in stock prices.
TODAY:
For weeks, I have been wary of a September/October correction, but have accepted the potential for a burst of strength before that. The market has been trading in a narrow range for 10 days with the S&P 500 hovering a bit above and below the 2,000 level.
Support today is DJIA: 17,093; S&P 500: 1,999; Nasdaq Comp.4,584:
Resistance today is DJIA: 17,137; S&P 500: 2,005; Nasdaq Comp.: 4,598
Both support and resistance levels here are tight and can be broken quickly, it depends on how this market resolves the tug of war underway over the last 10 days. There is the potential for a 200 – 300 point move in the DJIA here
Investor’s first read – Daily edge before the open
DJIA: 17,111
S&P 500: 2,001
Nasdaq Comp.: 4,592
Russell 2000: 1,172
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WHAT ARE THE ODDS OF A BIG CORRECTION OF 8% -12% ?
Last Friday’s market action increases the likelihood of another surge in stock prices, prior to any decline of significance.
While the rise in stock prices wasn’t great, the market action of the stocks I reviewed showed a distinct improvement.
I have expected a correction in September/October, one that could become significant if news deteriorates in the interim.
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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EUROPEAN CENTRAL BANK’S ECONOMIC STIMULUS
A surprise economic stimulus move by the European Central Bank (ECB) is driving the euro down sharply. 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.
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INTERNATIONAL TENSIONS:
Ukraine/Russia – quiet for now, but has the potential to get uglier.
ISIS/Iraq/Syria – Euro/Mid-East coalition forming to counter ISIS’s territory and influence quest.
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TECHNICAL ANALYSIS OF EACH OF THE 30 DOW INDUSTRIALS (9/5) 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 17,318; the primary support is 16,990 and secondary support is 16,912.
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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:
Very light week for reports. For detailed analysis of both the U.S. and Foreign economies along with charts, go to www.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:
NFIB Business Optimism Ix. (7:30):
ICSC Goldman Chain Store Sales (7:45):
JOLTS – Job Openings/Labor Turnover (10:00):
WEDNESDAY:
MBA Mortgage Purchase Apps (7:00):
Wholesale Trade (10:00):
THURSDAY:
Jobless Claims (8:30):
FRIDAY:
Retail Sales (8:30):
Import/Export Prices (8:30):
Consumer Sentiment (9:55):
Business Inventories (10:00):
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RECENT POSTS:
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
Sept. 4 DJIA 17,078 Bulls “Must” Take Charge NOW
Sept. 5 DJIA 17,069 Market to Tip Its Hand Today
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.
