Friday, August 1, 2014 9:04 a.m. BEFORE the OPEN
Dear Wall Street,
C’mon guys, time to wean yourselves from the Fed teat and accept reality – that interest rates will have to return to more realistic levels. What’s more, that a stronger economy is good for everyone, even you, the creators of the 2007 – 2009 mess that came within a hair of a global meltdown.
Fortunately, the combined efforts of the Federal Reserve, responsible business leaders and the U.S. government headed off a devastating Depression.
Ironically, the ensuing recovery had its detractors, people in high places who rooted for a lack of economic progress, because it ensured them the Fed would never taper out of Quantitative Easing (QE).
But taper came in December 2013 without disastrous consequences, and a moderate increase in interest rates should , as well. This zero-based stuff is not reality.
Higher rates would clearly give the economy a boost. Think of all the extra income people would have who are on fixed incomes, denied a decent return on money market funds, CDs,etc.
Then too, higher interest rates may prompt banks to do more lending.
The Street took taper in stride, but not without a dozen panic attacks along the way. It even seemed to accept a bump in Fed interest rates sometime next year.
However, the numbers have begun to reflect an economy that was gaining traction ahead of schedule, prompting a run for the hills.
Yesterday’s plunge did some technical damage, scaring the crap out of a lot of investors who became too complacent with the comfort of a “step-up” market, minor corrections followed by new highs.
That means overhead supply, sellers on any attempt for stocks to rebound significantly. (Read my update to “Technical Analysis of 30 Dow Jones Industrials below).
The stock-index futures were down sharply this morning before the Employment Situation Report, but rebounded when the report indicated a good, but not dynamic, number of jobs added in July (209,000 vs. 298,000 in June).
Suddenly, the Street is thinking, maybe the sizzle in the economy ISN’T so great that the Fed will have to let interest rates rise sooner than thought a day ago !!! WOW ! And these people run a lot of money.
Resistance todayis: 16,716; S&P 500: 1,948; Nasdaq Comp.: 4,411.
I expect a major buying opportunity to develop in coming months. It could be weeks if the market plunges sharply enough.
Investor’s first read– Daily edge before the open
S&P 500: 1,930
Russell 2000: 1,120
We will hear more cautionary comments from the Fed going forward in an attempt to ease an interest rate hike when its reality hits early next year. The Fed does not want speculative fever to run rampant prior to the rate increase.
The Fed’s “easing in” policy is bad news for those who want the feeding frenzy to continue unabated, but good news for investors who opt for a more stable market and an inevitable crunch instead of crash.
JUST IN: This morning on CNBC, Dallas Fed President, Richard W. Fisher indicated the economy was getting significantly closer to “liftoff,” suggesting to me and obviously others, that interest rates may rise sooner than expected. Based on various projections that could be Q1 or early Q1.
TECHNICAL ANALYSIS of 30 DOW JONES INDUSTRIALS
(UPDATED ANALYSIS: July 31 AFTER the 312 PLUNGE in the DJIA)
At key junctures, I technically analyze each of the 30 Dow industrials seeking a reasonable near-term support and a more extreme support leyel, as well as a short-term resistance level. By technically studying the balances of buying and selling in each stock, then converting that data back to the DJIA using the “divisor” (0.1557159) I can get a better reading on the average itself. The DJIA is a price-weighted average and subject to distortion by higher priced issues.
After yesterday’s crunch, Iran my analysis based on the July 31 closeand concluded the near-term upside for the DJIA is now 16,912, a reasonable downside from here is 16,290 and more extended downside risk to 15,960.
Note: My daily support/resistance levels are more short-term oriented
THIS WEEK’s ECONOMIC REPORTS:
The economic report schedule is heavy this week with a good balance between housing, service, production and employment
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”
PMI Services (flash) 9:45):July the winter low in Feb.flash reading at 61.2 well above 50’s break even and 7.9 points above
Pending Home Sales (10:00):Index was 102.7 in June vs103.8 in May
Dallas Fed Mfg (10:30):Index is 12.7 in July vs. 11.4 in Jun..
FOMC Meeting begins
ICSC Goldman Store Sales (7:45): Up 0.2 pct. in July 26 week from a drop of 0.4 pct. the prior week . Year/year is +4.6 pct.
S&P Case Shiller Home Prices (9:00): Slipped in May to a minus 0.3 pct. rate vs. +0..2 pct. in Apr.. Year/year is +9.3 pct. vs. +10.8 pct. Apr.
Consumer Confidence (10:00): Rose to 90.9 from85.2
State Street Investor Confidence (10:00): Slipped to 114.7 in July from 119.5 in June.
MBA Purchase Apps/Refi’s (7:00): Flat ! Down 2.2 pct., Refi’s down 4.0 pct. Year/year Apps down 12.0 pct.
ADP Employment (8:15): 218,000 Private Sector Jobs were added in July, June was revised upward.
to 281,000. Jobs added were across the entire spectrum of industries and pay scale.
GDP 8:30): Q2 growth was 4.0 pct. vs a minus 2.1 pct. – a surprise
FOMC Minutes - no press conference
Jobless Claims(8:30): Rose 23,000 to 302,000 for July 26 week.
Employment Cost Ix. (8:30): Surged 0.7 pct. in Q2 vs. a record low of0.3 pct. in Q1, reflecting wage/salary pressure.
Chicago PMI(9:45): July was down 10.0 points to 52.6
Employment Situation (8:30): July non-farm jobs added were 209,000 vs. 298,000 in June. Private Sector jobs added were 198,000. Unemployment Rate rose to 6.2%
Personal Income (8:30):
PMI Mfg. Ix. (9:45)
Consumer Sentiment (9:55):
ISM Mfg Ix. (10:00)
Construction Spend (10:00)
Global Mfg PMI (10:00)
July 22 DJIA 17,051 Significance of Yellen’s Warning
July 23 DJIA 17,086 Feeding Frenzy in Low-Priced Stocks Imminent ?
July 24 DJIA 17, 113 Taper’s End Fully Discounted – 2015 Interest Rates Not
July 25 DJIA 17,083 Is Market Action Setting Stage for a Leg Up ?
July 28 DJIA 17,960 Big Week – Economic Reports/Q2 Earnings
July 29 DJIA 16,982 Quite Before the Storm ?
July 30 DJIA 16,912 Market on the Verge of Big Move ?
July 31 DJIA 16,880 Huge Test for Bulls
*I use intraday prices
A Game-On Analysis, LLC publication
“Investor’s first read – a daily edge before the open”
Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is 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. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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