On October 3, I headlined, Debt Deal to Miss Oct. 17 Deadline –Settle Over Weekend – DJIA Bottoms Oct. 18, 12,760 (Friday).
We are still on track for that to happen, but must cope with the likelihood of a rally in the interim, precipitated by talk of a solution to the shutdown/debt ceiling stand off that heads off default after Oct. 17.
Depending on decisions in Washington in coming days, that rally could mark the end to this carnage and pave the way for a recovery in the stock market and investor, consumer, and corporate confidence.
Then again, a rally could be a fake out as it becomes obvious an agreement cannot be reached, resulting in a precipitous plunge in stock prices.
Obviously, the risk is twofold. Buying now may get you in prior to a big move up, or prior to a big move down if the debt ceiling is missed.
From what I see, read and hear, there is an element in Congress that simply does not understand what can happen if the U.S. defaults, even in a small way.
In 2008 we came within a hair of a total meltdown. Allow the country to default and a meltdown is guaranteed: including a stock market crash, money market breaking the buck, interest rate surge, bank closings, no access to cash, no checks for Social Security, no coverage Medicare/Medicaid, schools closed, unsafe to go out, and our own home-grown insurgency.
Some may want that, but there are those who don’t, namely those who are barely surviving, as well as those with lots to lose, the BIG money, owners of assets, people with too much to lose.
A crisis of this magnitude is usually resolved with minimal damage, since reasonable people decide the consequences are too dire not to find a solution.
Odds suggest this time is different, since we are dealing with extreme, unyielding political ideologies.
Perhaps the government can be re-started, but I see the debt ceiling debate going beyond the Oct. 17 deadline, with the market hitting a low on Friday the 18th, prior to a weekend solution.
I don’t see default, since I think the Treasury has a few more days of wiggle room than indicated.
A rally in anticipation of a solution is imminent, most likely start this week. I expect it to fail.
Investor’s first read– an edge before the open
S&P 500: 1,635
Nasdaq Comp.: 3.694
Russell 2000: 1,047
Wednesday, Oct. 9, 2013 (9:16 a.m.)
STOCKS OF GENERAL INTEREST:
Note: Currently, there is the potential for sharp moves in stocks in response to developments in Washington. Under these conditions, support/resistance levels are suspect.
I have added a “debt ceiling crisis” risk level for each stock, a price where these stocks could drop to if the debt ceiling decision goes down to the wire and fear escalates.
Apple (AAPL: $480.94 ) Positive.
Resistance formidable at $490. Market plunge can take stock into $460s.
Debt ceiling crisis price: $457 – $462.
Facebook (FB: $47.14 ) Positive, consolidation likely.
Raymond James downgrade from strong buy to outperform may put a lid on FB in the $48 – $49 area. Yesterday’s plunge in the market broke FB down. Resistance is $48.50, support is $44 – $45.
Debt ceiling crisis risk: $46.50
IBM (IBM: $178.72) Support failed, IBM now negative but getting cheap.
Yesterday was ugly as techs got hit. IBM should not be getting clobbered this badly after already dropping 17%. $168 – $ 172 possible in bad market. Debt ceiling crisis risk: $170
Pulte Homes (PHM: $15.59) Positive, but weakening as Washington dysfunction threatens entire economic/housing recovery.
This is what I refer to as the “ouch” point where a stock drops further than expected and is on threshold of more downside. Stock should find support between $15 and $15.50. If housing recovery is at risk, PHM goes to $12.50 – $13.
Debt ceiling crisis risk: $12.80
First Solar (FSLR:$42.29) Positive, but market plunge hurting
Debt ceiling crisis risk: $37.20
Target (TGT: $62.13) Negative.
Seller getting more aggressive. Drop below $60 possible Resistance $63.00. What is the message here ? Consumer temporarily tapped out ?
Debt ceiling crisis risk: $59.60.
Hewlett-Packard (HPQ: $20.75 ) Negative.
May break below $21. Really needs some institutional support – positive research report – aggressive bargain hunter ( if justified). Great bargains usually don’t just sit there letting big buyers in to buy all they want without moving the price up. Break below $21 suggests drop to $19.
Debt ceiling crisis risk: $17.90
EBAY (EBAY: $52.97 ) Positive.
Market plungs took toll yesterday. Resistance is $54, support $51.60
Debt ceiling crisis level now $51.
Amazon (AMZN: $303.23 ) Positive.
Market plunge taking a toll. Resistance is $309, Support $296
I do not own, nor am I short: AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.)
ECONOMIC REPORTS: A light reporting week shaping up. Some reports will be delayed due to shutdown, though Federal Reserve based reports and private sector reports won’t. The economy is not currently center stage, though the deadlock in Washington will hurt the economy and confidence and business decisions going forward.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com – www.mam.econoday.com
Consumer Credit (3:00) Auto purchases powered a 13.6 billion increase in Aug. credit after a $10.4 billion increase in July.
NFIB Small Business Optimism Ix.(7:30) Sept. down to 93.9 from 94.1 in Aug.
International Trade (8:30) PROJ.: Aug. -$40.0 billion
JOLTS (10:00) Jobs Opening and Labor Turnover Svy: PROJ.: Aug. 3.725 million vs. 3.689 July.
Fed’s Pianalto speaks (12:25)
Fed’s Plosser speaks (12:30)
Wholesale Trade (10:00) PROJ.: Aug. + 0.4 pct
Jobless Claims (8:30) PROJ.: week ended 10/5 310,000- vs. 308,000 prior week
Import/export Prices (8:30) PROJ.: Sept. +0.2 pct. vs +0.1 pct Jly.
Fed’s Bullard speaks (9:45)
Treasury Budget (2:00)
Fed’s Williams speaks (2:30)
Producer Price Ix. (8:30) PROJ.: Sept. +0.2 pct vs. +0.3 pct Aug.
Retail Sales (8:30) PROJ.: zero gain Sept. vs. 0.2 pct gain Aug.
Consumer Sentiment (9;35) PROJ.: Index Sept. 75.0 vs final Aug. 82.1
Business Inventories (10:00) PROJ.: Aug. +0.2 pct.
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”
Sep 25 DJIA 15,384 “Brinkmanship Starts – What to Do”
Sep 26 DJIA 15,237 “Street Not Worried – Yet Should You Be ?”
Sep 27 DJIA 15,328 “Prepare for an October Buying Opportunity”
Sep 30 DJIA 15,258 “Makings of an October Buying Opportunity”
Oct 1 DJIA 15,129 “Now the Scary Part – the Debt Ceiling – Default ?”
Oct 2 DJIA 15,191 “Potential for a Deadline to be Breached”
Oct 3 DJIA 15,133 “Debt Deal to Miss Oct.17 Deadline – Settle Over the
Weekend – DJIA Bottoms Oct 18, 12,760 (intraday)”
Oct 4 DJIA 14,996 “Weekend Proposal on Shutdown – a Head Fake ?”
Oct 7 DJIA 14, 936 “DJIA 12,760 if Oct. 17 Deadline Missed”
Oct 8 DJIA 14,936 “Don’t Chase This Week’s Rally
“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.