Yesterday’s rally was exactly what I expected, though it extended a little further than I projected.
I think it was technical, but drew additional oomph from investors who were afraid they were missing a big move.
They may have a point.
The Federal Open Market Committee (FOMC) meets for two days starting next Tuesday, topped off by an address by Chairman Ben S. Bernanke.
If the message is convincing that a reduction in $85 billion in monthly bond purchases can be achieved without running interest rates up to the point it stifles our economic recovery, the market will rally strongly challenging the May highs.
If not, uncertainty and angst will return and the market will decline to a level that discounts fears that the Fed’s exit policy is potentially flawed.
This is what I refer to as the “news whipsaw.” The market’s moves are dictated by Fed news. It could come out of meetings, out of a Fed official’s mouth, or from a visible Street pundit.
Investors buying or selling “on the news” can get whipsawed by the next conflicting statement. Kind of like a running back who gets hit from one side by a line backer, then the other side by another line backer and creamed head-on by the safety.
There is no easy way to play the whipsaw except buy on the plunge and sell on the surge and that strategy is not flawless.
First and foremost, we are in a bull market that has a chance to last for years, cross 20,000 on the DJIA and top out in a wild speculative frenzy.
All that, but NOT in a straight line. Corrections will occur in the interim, one may exceed 16%.
Positioning (timing) is important. A poorly timed investment may result in a loss that takes months to recoup, so keep your cool.
The credibility of yesterday’s surge will be tested in coming days as the FOMC meeting approaches.
Minor resistance “starts” at DJIA 15,240 (S&P 500: 1,645) , more important resistance is DJIA 15,295 (S&P 500: 1,650).
Support is DJIA 15,054 (S&P 500: 1,622).
Great news out of the Fed gives the market a shot at the May highs. I don’t see that.
Bad news, i.e. the Fed will start backing away from its asset purchases in the near future would take the market lower.
“More of the same” calls for a saw-toothed market action with erratic, wide swings in stock prices – the most likely scenario.
Investor’s first read – an edge before the open
S&P 500: 1,636.36
Nasdaq Comp.: 3,445.36
Russell 2000: 9.89.69
Friday, June 14, 2013 (9:04 a.m.)
Apple (AAPL: $435.96)
When AAPL broke support at $433 yesterday, I wrote it is headed for $420 – $422.70, with a slight chance buyers will jump in around $426. With some help from the overall market, it only got down to $428 before it bounced. This improves the technical pattern, but it will take some big buying to push it over $450. Stock is in limbo and needs more than platitudes and “next year will be better” from management.
FACEBOOK (FB – $23.73)
FB “filled the gap” created four days ago when it opened at $24.06 up from $23.29. Technicians tend to expect a stock that gaps in price to come back and fill that gap before moving higher. Maybe that was true when the institutional impact was not so great. That said, FB is probing for a base in here and could run up to $26 – $27 with a stable market. Resistance starts at $25.45. So for you non-technicians, what do I mean by “resistance” aka overhead supply ?
It’s is an area where sellers can be expected to show up, based on market action in the past. FB had enough sellers between $24.95 on May 31 and $24.60 on June 10 to turn a rally in its stock back down. The big question now is, are there still sellers at that level to put a lid on FB’s next rally.
We have a light schedule for economic reports this week. For access to information including charts and graphics go to www.mam.econoday.com . Great site !
Producer Prices (8:30) Proj. +0.2%
Current Account (8:30) Proj. minus $111.2 bil.
Industrial Production (9:15) +0.2%
Consumer Sentiment (9:15) Proj. 84.5
“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.