Buying Open Risky

George Brooks |

The reason buying the open today is risky is you may pay the high for the day. The Street is relieved, buoyant with Fed chief Bernanke’s comments after the close yesterday that the Fed will remain accommodative, i.e. no tapering until jobs and the economy justify it.

   Investors see this action (or inaction) as a big “BUY.”

   I don’t.

   As I see it, Bernanke’s comments spell “UNCERTAINTY” with the whipsaw market action continuing as the market reverses direction frequently in response to news or “indications” that the economy is improving, ergo the Fed may be nearing a withdrawal from QE (market down), or that the economy is stalling, and Fed taper nowhere in sight (market up).

   I think the Fed got its cage rattled following Bernanke’s June 19 statement about tapering out of QE, Interest rates shot up, bond prices shot down along with the stock market. Why else would they dispatch all those FRB presidents for damage control ?

   We couldn’t ask for more than a Fed that, though divided, is endeavoring to nurse a badly damaged economy back to health.

   However, there is a transition that must be addressed by investors from Fed accommodation to significantly less accommodation and eventually to tightening.

   Investors need to know what to expect during that transition. How does the Fed intend to pull it off with minimal chaos ?

   The higher stock and bond prices go from here, the greater the risk when the Fed begins to change direction.

   CONCLUSION:

I am disappointed. I was hoping for total clarity, not a continuing message of, don’t sweat it we’ll take care of everything ……..up to a point

We won’t know what the BIG money thinks of Bernanke’s comments until later in the morning. If they don’t like it, the market will tank. If the Fed’s position enables it to continue to grind out profits, we will see new highs.

   I am leery of emotional opens, far too often they mark many stocks’ highs for the day.

   What continues to loom in the back of the Street’s mind is, when will we GET THE NEXT INDICATION THAT THE FED IS ON THE VERGE OF TAPERING ?

   Still fresh in their minds is what happened June 19 – June 24 when stock and bond markets plunged.

TODAY:

Early spike to DJIA 15,465 (S&P 500: 1,668). If the BIG money sells into this open, we will close lower. If not, odds favor sideways consolidation following the initial up move.

Investor’s first read – an edge before the open

DJIA: 15,291.61

S&P 500: 1,652.63

Nasdaq Comp.: 3,520.75

Russell 2000: 1,020.42

Thursday, July11, 2013         (8:58 a.m.)

TECHNICAL COMMENTS – STOCKS:  

The following comments are based on “technical analysis,” which is intended to reflect the consensus of the Street at a given time.

Apple (AAPL: $422.35)

Yesterday’s attempt to breakout above $425 lacked the needed volume to penetrate the selling that showed up shortly after the open. The action suggests a need to back and fill with the possibility of a dip to $418 support. Obviously, the big hurdle will be its July 23d, Q3 earnings report which is expected to show no-growth year-over-year.

   Odds favor AAPL has seen its lows for 2013, but it has had 5 false moves since its September 2012 high of $705.

   I really think management should be out there selling an image of an innovator, industry leader and great service company. What this company brings to the table is worth 12 times earnings, just because it is Apple. It sells at less than 10 x earnings, yields 2.9% and has a ton of cash. What will this company look like 3 years from now ?

FACEBOOK (FB - $25.48)

It took heavy volume, but FB punched through resistance at $25, and went on to post another nice gain yesterday. Resistance is now $26.75. The pattern here has been for sharp moves to be quickly followed by a 3-4 day correction. This move should be good for another day or two. I am raising support to $25.25.

I DO NOT OWN, NOR HAVE I EVER OWNED APPLE OR FB.

ECONOMY:

The Street is now faced with a choice – Is it hoping for disappointing reports and an increase in the likelihood that the Fed won’t back away from QE soon ? Or will it hope for upbeat reports, a sign that QE has been helping. It can’t have it both ways – For access to information including charts and graphics go to www.mam.econoday.com .

THURSDAY:

Jobless Claims (8:30) Proj. for July 6: 337,000 vs. 343,000 prior week.

Import/Export Prices (8:30) Proj.: +0.1%

FRIDAY:

Producer Prices (8:30)   Proj. for June 13: + 0.5%

Consumer Sentiment (9:55)   Proj.: July 13 84.1 vs. 84.5

George Brooks

“Investor’s first read – an edge before the open”

 sensiblesleuth@gmail.com

……………………………………………..

The writer of Investor’s first read, George Brooks, is not 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. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MRMBF Morumbi Resources Inc 0.08 0.00 0.00 0

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