Don't Rule Out Fed Taper By Year-End

George Brooks |

What can stop this 15-day surge ?  Talk of a Fed taper sooner than expected, for one. Yes, I know, the economy doesn’t seem strong enough to endure a cutback in Fed stimulus. But without the uncertainty and escalating doubt that governance in Washington is remotely possible, our economy may be ramping up a head of steam by now.

   CONFIDENCE RULES, whatever way you may want to slice the factors that drive stock prices up and down, confidence, or lacks of it, calls the shots. All those other indicators measure its intensity.

   Obviously, the Fed simply can’t continue its stimulus indefinitely. Just a hint of a taper near-term will trigger a sharp correction in the market, but only temporarily.

   The last thing the Street expects now is a Fed taper, and that is what is built into stock prices now.

   What else can stop this 15-day surge, aside from a remote, unseen crisis ?

   Well, markets do not notch up indefinitely. The imbalance between buying and selling pressures will shift. In this case buyers would pare back commitments and profit-takers accelerate  locking in quick gains. It’s a “technical” thing.

   It starts innocently as a modest drop to a generally expected support level, but that doesn’t hold, nor does the next one. Buyers become wary as prices slip. Sellers start to dump, fearful their gains will slip away. Next thing you know, the market is off 5% -8%.

   TODAY:

   The FOMC reports following its two-day meeting. Since Fed chief Bernanke is NOT holding a press conference, I do not expect BIG news on taper. Don’t rule out a “hint” though.

  This big bull will eventually reach the reckless speculative stage, where the public is sucked in to get slaughtered (again). In the interim, there will be corrections that come when the Street least expects it.  It is so easy to forget that can happen, especially when so many stocks are hitting new highs (NYSE yesterday 766).

   Minor support is DJIA 15,657 (S&P 500: 1,768).  Next support would be DJIA 15,435 (S&P 500: 1,745).  Resistance: See below.  I will recalculate the 30 Dow exercise this week, to double check this technical analysis   

TECHNICAL ANALYSIS of EACH of the 30 DOW INDUSTRIALS:

On October 20, I did a technical analysis of each of the 30 Dow industrials seeking three results. One, was a reasonable intermediate-term high, the other two were a reasonable support level and a level that reflects the risk of a stinging correction. I totaled the numbers for each column and divided by the Dow industrials “divisor” to get a projected level for the three. I saw the intermediate-term potential for the DJIA at 15,843 with support at 15,200, and a nasty correction target at 14,631.

The DJIA never tested either support, instead is 163 points of  my projected intermediate-term high. Obviously, I couldn’t do the same for 500 S&P Composite stocks, besides the “math” is different.

 Investor’s first readan edge before the open

DJIA: 15,680

S&P 500: 1,771

Nasdaq  Comp.3,952

Russell 2000:  1,121

Wednesday, Oct. 30, 2013     (9:15 a.m.)

   STOCKS OF GENERAL INTEREST: I am considering the elimination of this section and offering it in a separate publication on a subscription basis.

I would be able to cover more companies, and would not be constrained by a pre-market deadline. Comments welcome: sensiblesleuth@gmail.com. Include opinion about how you think I could even improve commentary bearing in mind these are NOT buy/sell comments.

   The following are based on technical analysis only and  are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of  the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly. 

Apple (AAPL: $516.67) Positive.

AAPL’sQ3 earnings report released after the close Monday was disappointing. Gross margins were less than projected, but quarter earnings, though down 8.6% vs.  a year-ago beat analysts’ projections, as did expectations for the  holiday season. Yesterday AAPL soared to $539 in early trading, but attracted serious selling throughout the day, closing down $13.20 for the day on heavy volume, but only after hitting a low of $514.54.Resistance is now $522. Minor support  is $512, but a test of the $500 level is not totally out of the question. There are some healthy short-term gains here after its run from $447 in mid September.

Facebook (FB: $49.39) Positive

Last week was a consolidation week  which may reflect nervousness about earnings due Oct. 30.  However, this may just be a correction to its 8-day surge in early Oct.. While there has been some buying in the low 50s, it was important the $50 level held up  to head off a further decline, possibly to $48 - $49 and that is where it is now. Resistance is $50.35.

IBM (IBM: $182.12)  Negative, and it only has to work on its base a bit longer to turn positive.

IBM is in the early stages of tracing out a base. It may take time.  Yesterday, I noted that breaking resistance at $179, IBM can get to $180 - $182 in a good market. It did that and can extend to up move a bit further to  $184 - $185. Support is $179.60

Pulte Homes (PHM: $18.21)  Positive

Investors got  the earnings report they  were looking for last week  pushing PHM across $18.It held at $17.75 -  $17.80 support yesterday and closed at the high for the day $18.21. Stock can work higher, $18.65, or so before consolidating its October up move.

First Solar (FSLR:$52.36)  Positive

Got stopped in its tracks Friday at $54.70 but as expected, found some buyers at $50. While it could test $50 again, $51.50 looks like the best it can do on the downside as it  looks ready to move up to $53. The stock has a healthy short position, so buying can be expected on dips. Earnings due 10/31. Has an outside shot at $58, if earnings chase shorts.

Target (TGT: $64.32) Neutral

 Monday’s action improved its pattern, only to have some selling show up yesterday. Resistance is now $64.73. Support is $64.42.

Buying late Friday penetrated a downtrend line, improving TGT’s ugly chart pattern.  This is a ho-hummer, but  a basic retail stock and it can’t get more basic than retail.   I have been concerned about “retail,” suspecting consumers are turned off by the uncertainty in Washington and restrained by short-term cash flow problems as the holiday season approaches. Support is now $64.25, resistance $65.30.

 Hewlett-Packard (HPQ: $23.84)  Positive.  Can get to $26 if it can cross resistance at  $24.50. Support is $23.65. HPQ has a technical personality of its own, kind of a strange “rolling” pattern. How does this happen with one stock and not others ?  It shows up best on a 3-month chart not only with the daily highs but the lows, as well.  Almost as if it is privately traded by a giant investor.

 EBAY (EBAY: $53.34) Neutral  but buying yesterday improved picture.

With support now at 52.55, EBAY must break $54 to turn positive and even then I am uneasy about the stock.

Amazon (AMZN: $362.70) Positive

No change except last line. AMZN pleased the Street last week with its Q3 earnings report, but it was Raymond James’ Aaron Kessler’s  raising of its rating to Strong Buy from Market Perform with a price target of $446 that blew it out. Thursday’s market action suggested a strong move up, but not a “gap” of 22-points at the open. This is the kind of stuff that whets appetites. ! Currently, a break above $365 gives  it a shot at $370 - $378.

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

ECONOMIC REPORTS

  Heavy slate of reports this week, however accuracy is

   For a detailed account of past and current economic reports, including charts go to: mam.econoday.com - www.mam.econoday.com

MONDAY:

Industrial Production (9:15)  Sept. +0.6 pct. vs forecast +0.4 pct.

Pending Home Sales(10:00) Sept. down 5.6%, lowest in nine months.

Dallas Fed. Mfg. Ix.(10:30) Oct. index  -3.6 down from 12.8.

TUESDAY:

FOMC Meeting begins

ICSC Goldman Store Sales (7:45) Down 0.4 pct. for week ended 10/21

Producer Price Ix.: Sept. down 0.1 pct. / core was up 0.1 pct.

Retail Sales (8:30) Proj.: Sept.: Sept was – 0.1 pct. vs. +0.2 pct Aug.

S&P Case-Shiller Home Price Ix. (9:00)  20 cty HPI +0.9 pct Aug./ +12.8 pct. y/y

Business Inventories (10:00) Proj.: Aug.: +0.3 pct.

Consumer Confidence(10:00) Oct. index dropped to 71.2 from 80.2

State Street Investor Confidence Ix.(10:00) Oct. index dropped to 95.7 from 101.3 in Sept. as result of shutdown/default risk.

WEDNESDAY:

ADP Employment Rpt(8:15) Proj.: Oct.: 138,000

Consumer Price Ix.(8:30) Proj.:Sept.: +0.2 pct.

FOMC Meeting announcement (2:00) No Bernanke press conf. planned

THURSDAY:

Jobless Claims (8:30) Proj.:for 10/26: 335,000

Chicago PMI (9:45) Proj.:Oct.: ix.: 55.0 vs 55.7 Aug.

FRIDAY:

Motor Vehicles Sales Proj.:Oct.domestic:11.9 mill-unit rate (total: 15.4 mil.-units)

Fed’s Bullard speaks(8:00)

PMI Mfg Ix.(8:58) Proj.: No data available

ISM Mfg. Ix.(10:00) Proj.:Oct.: ix.: 55.0 vs. 56.2

Fed’s Kocherlakota speaks(11:15)

RECENT POSTS - 2013

Oct 15 DJIA   15,301   “What If We Default ?  What If We Don’t ?

Oct 16 DJIA   15,168   “Market Saying “Deal” – A High Risk Bet ?”

Oct 17 DJIA   15,373   “How Much of the “Deal” has the Market Discounted” ?

Oct 18 DJIA   15,371   “No More Wall of Worry for  Bull Market to Climb ?”

Oct 21 DJIA   15,399   “Analysis Projects High-Low Range for DJIA”

Oct 22 DJIA   15,392   “Is the Stock Market Vulnerable ?”

Oct 23 DJIA   15,467   “Q3 Earnings – Only Worry In Town ?”

Oct 24 DJIA   15,413   “No Fed Taper in Sight ?  Don’t Bet on It.”

Oct 25 DJIA   15,509   “Best Six Months for Owning Stocks”

Oct 28 DJIA   15,570   “Do I Detect Speculative “Fever “ ? If So, What Can   

                                       Happen”

Oct 29 DJIA   15,568  “ When Will the Small Investor Plunge ?”

 

  George  Brooks

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

sensiblesleuth@gmail.com

*NOTE:  STOCK TRADERS ALMANAC: The new annual Stock Trader’s Almanac  is off the press.  This is a “must,” always has been, if you are a serious  investor, or intend to be a serious investor. Visit stocktradersalmanac.com for details

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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.

 

 

 

 

 

 

 

 

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