Can a Normal Correction Become a Bigger One?

George Brooks |

A correction has started, triggered by concern for the uncertainty and angst that will accompany the prospect of a government shutdown in coming weeks, probably one reason the Fed opted “not” to taper this month.

   Other negatives include, the next speed bump in the Syria solution, and our economic recovery, i.e. is retail hitting a wall ?  Will the housing industry rebound now that interest rates have slipped lower ?

   While we will get a host of housing industry reports this week, the numbers won’t reflect the interest rate drop triggered by the Fed’s decision last week not to begin  taper.


   This bull market has further to go, but is vulnerable to an 8% to 12% correction, which could persist for months. The big contributors to that would be continued gridlock in Washington and a retail-based slump in the economy.

   Moderate corrections come and go, but the bigger ones often develop when a moderate correction (3% - 5%) turns into a bigger one as a result of new negatives that hit the market when it is down but ready to rebound.

   By way of its decision not to begin to taper out of QE this month, interest rates have retraced some of the sharp gain posted after Fed chief Bernanke’s commentary on June 19 about taper starting this fall and ending in mid-2014.

  That slide may be short-lived as we move into October when the debate surrounding the raising of the debt ceiling hits full stride and the FOMC announces it next decision on taper on the 30th.

   Any rally here should encounter resistance at DJIA 15,495 (S&P 500: 1,714)

   Risk today is DJIA15,380 (S&P 500: 1,702).

   Investor’s first readan edge before the open

DJIA:  15,451

S&P 500:  1,709

Nasdaq  Comp. 3,774

Russell 2000:  1,072

Monday, Sept. 23, 2013     (9:16 a.m.)


The following are observations based solely on technical analysis and don’t give consideration to fundamentals or changes in brokerage ratings which can  have an immediate impact on stocks, justified or not.  The idea here is to give readers insight into the likely trends and turns in the stock’s price, short-and long-term.

   I picked up on AAPL and FB last year when they were in a tailspin, and  picked up on IBM, Pulte, First Solar, Target, and Hewlett-Packard recently for the same reason. These are not  buy or sell recommendations, and are not stocks I have recommended.

NOTE: Expect  support and resistance levels to change more frequently under adverse  and uncertain conditions  like those we are experiencing presently..

   WARNING: This market  is highly “news sensitive,” with everything at the present negative. Any break for the better in the mid-East, taper, or in the threat of a government shutdown in October will trigger a rally, especially in stocks below, since they have been hammered already.

Resistance/support levelsare “tight” and more easily penetrated than if I gave readers  “general” resi/spt levels.

  Apple(AAPL: $467.41 ) 

Note: Bottom was targeted at $385 for the turn around  Apr. and Jun. 2013 (double bottom). I continue to follow

Pattern: Now neutral  down from bearish.

Resistance:  $498  Up sharply before the open.

Support:  Rises to $466, but $457 possible in weak market.  Icahn a nuisance to management but good news for investors.

The Motley Fool investment letter  attributes AAPL’s problem to : “Since their introduction, both the iPhone and iPad have been the best products at the best price points….In the last year, the market has shifted.  Now Apple’s products appear to be overpriced compared to their rivals and they aren’t necessarily better.” Clearly a case where management has decided to play “prevent defense,” ie. try not to lose a dominant position. You have to play the game that got you there !

Facebook (FB - $47.49)

Note: Bottom was targeted below $18 for a turnaround Sept. 2012.  Continue to follow.

Pattern: Positive

Resistance: $49.90

Support: $46.60

Recent strength attributed to Sun Trust Robinson Humphrey’s increase in price target to $55 from $40. Broke out of consolidation Friday on good volume.

  IBM ($190.02) 

Note: Started coverage  Aug. 7, 2013 after big plunge in stock

Pattern: Positive but correvting nice August – September move

Resistance:  $191.30       The $194 - $196 area should be tough to penetrate                    

Support:  $188.15

Be aware that IBM has ranged four times up and down between $185 and $215 over the last two years.

  PulteGroup (PHM- $17.12) 

Note: Started coverage Aug. 12, 2013

Pattern: Positive but Taper decision could move it sharply one way or another

Resistance: $17.45

Support:  $16.80  Buyers – watch momentary dip below $17.00 followed by a bounce.

Big beneficiary of the Fed

First Solar (FSLR: $39.02)

Note: Started coverage: Aug.: 22, 2013

Pattern: Neutral – basing – improved yesterday but so did others.

Resistance: $40.25

Support: $38.65  Nice up channel.  Break below $37.60 bad news

Target (TGT: $64.55) 

Note: Started coverage Aug: 22, 2013:

Pattern:  Needs to stabilize after yesterday’s return to its base from resistance level.

Resistance: $64.30   Still basing, but must hold above $63.50. Retail could be the harpoon for a pick up in the traction of the economy. I sense something not right out there.

Support: $65  Nice base forming

Hewlett-Packard (HPQ: $21.22)

Note: Started coverage Aug. 23, 2013

Pattern: Negative  -

Resistance: $21.35

Support: $20.25 Not sure what problem is here. Street must be looking at downward revisions in earnings. Look for a swift disjointed drop below $20, possibly to $18.75 - $19.30 followed by a sharp bounce. All that assuming no horrendous problems..

Bears seeming to be driving a nail here one fraction of an inch down with each smite.

eBay (eBay: $54.95)  

Note: Started coverage Aug. 28, 2013

Pattern: Positive – on a roll

Resistance: $56 - $57 in a decent market

Support:  $ 54.30  (AMZN: $316.34)

Note: Started coverage Aug. 28

Pattern:  Bullish , but correcting September up move.

Resistance: $319 Ran into a little selling Friday.   Breakout to $325 possible with help from overall market

Support:  Support now $312.   Bad market  tests $306

 I do not own, nor am I short  AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.

ECONOMIC REPORTS:  Another key week for reports on the economy. Of note, are reports on the housing industry (see below).  Interest rates have dropped following the Fed’s decision “not” to taper this month, but we need a few weeks to see if that triggers a resurgence in home buying and refinancing.

   For a detailed account of past and current economic reports, including charts go to: -


Chicago Nat’l Activity Ix. (8:30)  No proj.

PMI Mfg. Ix. (8:58)  PROJ.:  Sept. Ix. 54.0  vs. 53.1 end of Aug.

Fed’s Lockhart speaks (9:20)

Fed’s Dudley speaks (9:30)

Fed’ Fisher speaks (1:30)


Fed’s Pianalto speaks(8:30)

FHFA House Price Ix. (9:00)  PROJ.:  July +0.7 pct. vs. +0.8 pct. May

S&P Case-Shiller House Price (9:00) PROJ.:    July +0.8 pct.  vs. pct. June.  Year/year + 12.4 pct.

Consumer Confidence (10:00)   PROJ.: Sept. Ix. 80.0 vs. Aug. 81.8

Richmond Fed Mfg. Ix. (10:00)  PROJ.: Sept. Ix. 10.5 

State Street Investor Confidence Ix.(10:00)  PROJ.:  No proj.


Durable Goods (8:30)  PROJ.:  Aug. -0.5 pct. vs. - 7.4 pct July, New orders Aug. +0.1  pct.

New Home Sales (10:00)  PROJ.: Aug. 425,000 units annual rate vs. 394,000 July


Jobless Claims (8:30)  PROJ.: 330,000 for 9/21  vs. 294,000  prior week– distorted by reporting  problems

GDP (8:30) Third estimate Q 2   PROJ.: +2.7% annual rate

Corporate Profits (8:30)  PROJ.: No proj.

Pending Home Sales (10:00)  PROJ.:   Aug. -1.0 pct. vs. -1.3 pct July

Fed’s Stein speaks (10:10)

Kansas City Fed Mfg. Ix.(11:00)  PROJ.: Sept. Ix. 9.0

Fed’s Kocherlakoda speaks (12:15)

Fed’s George speaks (9:15)

FRIDAY:Fed’s Evans speaks (5:45 am)

Personal Income and Outlays (8:30)    PROJ.:  Aug. +0.4 pct.   vs. +0.1 pct. July

Fed’s Rosengran speaks (8:30)

Consumer Sentiment (9:55)   PROJ.:  Sept. Ix. 78.0

Fed’s Dudley speaks (3:00 pm)



Sep 16  DJIA   15,376  “No Taper ! No Summers ! Selling Opportunity ?

Sep 17  DJIA   15,494  “No Taper= Rally Followed By a Sell off ?

Sep 18  DJIA   15, 529  “Sell the Taper Rally ?”

Sep 19  DJIA   15,676   “Raise Cash for Better Opportunities”

Sep 20  DJIA   15,636   “Raise Cash for October Opportunity”

Note:  The DJIA may be impacted more with the replacement of Bank of America (BAC), Hewlett Packard (HPQ), and Alcoa by Goldman-Sachs (GS), Visa (V), and Nike (NKE).  While the change isn’t effective until the morning of trading Sept. 23, the trading by index funds  associated with these changes may distort the averages.

*Stock Trader’s Almanac – 2014 issue just off the press.

  George  Brooks

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


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. Brooks may buy or sell stocks referred to herein.








DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of 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:


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