Reluctantly, the stock market has caved to the prospect of a government shutdown, where the payment of certain bills is postponed, while priority items kept current.
Kickoff of this crisis begins on October 1, with the beginning of the U.S. government’s new fiscal year. The government can bob and weave with paying its bills until mid-to-late October before it gets ugly (default), with unthinkable consequences – a lowered credit rating, recession, civil unrest, distrust, etc.
A similar confrontation between the White House and Congress over raising the debt ceiling triggered a 19%, 14-day plunge in the DJIA between July 21 and August 9, 2011.
Expect volatility to increase driven by a news “whipsaw,” as first it appears certain a shutdown can be averted, then odds appear to favor that it can’t.
I don’t think the Street believes there will be a default – A temporary shutdown, YES, but default, NO !
The initial risk here is a drop to DJIA 15,200 (S&P:500: 1,682) with a brief spike down to DJIA: 15,075 (S&P 500: 1,668).
Unless the market rallies in anticipation of a “deal” that averts a shutdown, the announcement should when it comes trigger a sharp “relief” rally.
Be ready for that.
Note:Thirty three points of the DJIA’s 66-point drop yesterday were accounted for by two of the three new additions – Visa (V: – $2.90) and Goldman Sachs (GS: – $2.28)
TECHNICAL ANALYSIS DJIA
My technical analysis of each of the 30 Dow Jones industrials over the weekend indicated two short-term support levels, one at 15,382 , the secondary support is 15,198 (3.3%). These calculations were based on the new Dow 30 industrials (see below) and its new “divisor,” 0.155715905.
The market averages have already hit the first target level. Unfortunately, I needed to confirm the new divisor before publishing this.
This calculation works better at bottoms; after the market has been pounded, It was particularly accurate for my targeting of the bear market bottom in early March 2009 when an extreme was very readable. Use here may be premature, and I am not looking for a bottom, just an opportunity that may be triggered by near-term negatives, as we head into what is usually prime-time for buying stocks..
Support levels can change in a heartbeat in reaction to news and commentary by influential people, especially in an uncertain environment. The market averages will find other support levels in the interim.
Brinkmanship Starts – What to Do
Investor’s first read– an edge before the open
S&P 500: 1,697
Nasdaq Comp. 3,768
Russell 2000: 1,074
Wednesday, Sept. 25, 2013 (9:16 a.m.)
TECHNICAL OBSERVATION – STOCKS: NEW FORMAT
I am streamlining this format in order to include more stocks.
The following are observations based solely on technical analysis and don’t give consideration to fundamentals or changes in brokerage ratings, earnings guidance/projections, breaking news, which can have an immediate impact on stocks, justified or not. The object here is to sense forces of supply and demand for the stock which affect support and resistance levels frequently.
These are not buy or sell recommendations, and are not stocks I have recommended.
STOCKS OF GENERAL INTEREST:
Apple (AAPL:489.10 ) Positive. Approaching resistance $500 – $510. OK above $486
Facebook (FB: 48.45)Positive. Ran into resistance short of $50. Could sneak down below before rebound. Odds favor a breakout above $47 likely
IBM (IBM: $189.97 )Positive. Orderly correction. $188 possible before bounce. Pulte Homes (PHM: 17.10) Nice rebound after brief slip below $17. Lower interest rates helping. Ready to attack resistance at $1740;
First Solar (FSLR:#39.04 )Neutral, rebound pattern sloppy, Needs to hold above $38. Resistance tough $40+
Target (TGT: 63.91)Neutral, but pattern turning ugly Resistance at $65 formidable.
EBAY (EBAY: $55.17 )Positive, Resting after gain. Slip to 54 possible, Break above 55 counts to 56 – 57
Amazon (AMZN: $314.13) Positive action, but consolidation between $310 and $320 likely
STOCKS SHOWING ATTRACTIVE or UGLY TECHNICAL PATTERNS
ALSO NEW: This is intended to call attention to unusual technical activity. Will not be followed daily.
(NOTE: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: mam.econoday.com – www.mam.econoday.com
ICSC Goldman Store Sales (7:45) 1.0 pct. gain in Sept. 21 week vs. prior week y/y: 1.6 pct
Fed’s Pianalto speaks(8:30)
FHFA House Price Ix. (9:00) July 20 city prices were up 1.0 pct. vs. 0.7 pct June
S&P Case-Shiller House Price (9:00) July prices were +1.8%. Year/year + 12.4 pct.
Consumer Confidence (10:00) Sept. Ix. was 79.7 vs. Aug. 81.8 (rev.)
Richmond Fed Mfg. Ix. (10:00) Unchanged in Sept. vs. 14.0 in Aug.
State Street Investor Confidence Ix.(10:00) Sept. index was 101.4 vs. 104.9 (rev.)
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)
RECENT POSTS: 2013
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”
Sep 23 DJIA 15,451 “Can a Normal Correction Become a Bigger One ?”
Sep 24 DJIA 15,401 “Opportunity Looms as Storm Clouds Form”
“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.