Last week,I warned of a news whipsaw market that will trigger sharp moves up in face of news that suggested an end to the hostilities in Washington, then down when hopes were dashed. This led to my posts here:
“Don’t Buy a Debt Ceiling Rally” (Wednesday, Oct. 9)
“A Very, Very Dangerous Rally” (Thursday, Oct 10)
“News Whipsaw Can Roil the Market in Coming Days” (Friday, Oct. 11)
This was written as the White House and Congress were beginning to have encouraging talks. The debt ceiling would never be breached many said, and the stock market soared with the DJIA up 435 points in three days.
But weekend talks hit a wall, and concern for a breach of the October 17 debt ceiling deadline has resurfaced as the deadline week begins.
While default would be unthinkable, there are no 100% guarantees anymore, not after what we saw in the crash of 2007 - 2009 with Wall Street’s biggest names (Lehman, Merrill, Bear, AIG, Washington Mutual, et al,) vanishing from sight
I have never believed the United States would default - miss the deadline for a few days, yes, but not default.
I think they will take this to 11:59 p.m. Thursday before reaching an agreement of sorts. And there is a possibility it goes to the weekend, but without default.
If the stock market takes a big hit in the interim, a buying opportunity will be more attractive than if the market hangs tough throughout.
But, I am beginning to be concerned about the market beyond a resolution to the debt ceiling and shutdown. A lot of damage is being to confidence that this country can be effectively governed. That has to impact consumer and business decisions.
On October 3, I said the Oct. 17 debt ceiling deadline would be breached, but a deal would be reached the following weekend, the 19th and 20th. I reasoned that Treasury Secretary Lew can find ways to stretch the deadline several days without defaulting.
Additionally, I said I expected the DJIA to hit 12,760 intraday (S&P 500: 1,430) on the Friday the 18th which, but that would be a big buying opportunity.
Risk of drop below DJIA: 15,100 (S&P 500: 1,685). Without a break in the deadlock, a rally would run into resistance at DJIA 15,146 (S&P 500: 1,694).
The Federal Reserve will be out in force this week. Politicians will scramble to avoid blame, and the press will love it.
Fear of default will drive stocks down, hopes run them back up – a cruel whipsaw.
Investor’s first read– an edge before the open
S&P 500: 1,703
Nasdaq Comp.: 3,791
Russell 2000: 1.084
Monday, Oct. 14, 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: $492.81) Positive.
Worked through resistance at $490. Break above $494 raises odds of move across $500 to $504 - $506.
Facebook (FB: $49.11) Positive, consolidation likely.
Raymond James downgrade from strong buy to outperform may put a lid on FB in the $48 - $49 area. It was tested yesterday and Thursday and may need time before a breakout above $50.
IBM (IBM: $186.16) IBM now positive. Late buying Friday suggests a move to $189.
Pulte Homes (PHM: $43.31) Positive , but weakening as Washington dysfunction threatens entire economic/housing recovery.
Late-day buying Thursday and Friday signaled a move to $16.50 - $17.
First Solar (FSLR:$43.31) Positive
FSLR spikes up and down a regularly. It spiked both Thursday and Friday and can be expected to spike today unless weekend news was disappointing. Move across $43.90 raises chances it can attack $45.
Target (TGT: $63.21) Negative, but showing some life.
Plunge in early trading Friday was quickly reversed indicating a buyer is there. Move across $63.60 improves its pattern to neutral.
Hewlett-Packard (HPQ: $22.80) Neutral
CEO Whitman spiked HPQ with generally optimistic comments last week, but a follow through is uncertain. Stock must break through $23.60 to confirm the beginning of a turn around.
Break below $22.00 takes HPQ back to $21.25.
EBAY (EBAY: $54.37) Positive.
Traders back in EBAY as stock hits Friday projection for move to $54.60 Next stop $555.26.
Amazon (AMZN: $310.88) Positive.
Friday carried two point past my target. Break above resistance at$310.95 counts to $316 - $317.
I do not own, nor am I short: AAPL, FB, IBM, PHM, FSLR ,TGT, HPQ, EBAY, AMZN.
ECONOMIC REPORTS: No fewer than eight Federal Reserve officials spean this weekA 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
Fed Chief Ben Bernanke speaks. (8:00 p.m.)
Empire State mfg. Ix. (8:30) PROJ.: Oct index 7.0 vs. 6.29 Sept.
Fed’s Dudley speaks (10:00)
Fed’s Williams speaks (11:10)
Fed’s Fisher speaks (7:15 p.m.)
Consumer Price Ix. (8:30) PROJ.: Delayed due to shutdown
NAHB Housing Market Ix.(10:00) PROJ.: Index for Oct. 58 unch from Sept.
Fed’s Fisher speaks 6:45)
Fed’s Fisher speaks (7:45)
Housing Starts (8:30) PROJ>: 0.913 million unit rate vs. Aug. rate of 0.891 million
Jobless Claims (8:30)Distorted due to shutdown PROJ: 10/12: 330,000
Industrial Production (9:15) Delayed due to shutdown
Philly Fed Svy (10:00) PROJ.: 15.0 Oct. vs 22.3 Sept. vs. 9.3 Aug.
Fed’s Evans speaks (12:45 p.m.)
Fed’s George speaks (1:45 p.m.)
Leading Indicators (10:00)
Fed’s Evans speaks(2:00 p.m)
Fed’s Stein speaks (4:30 p.m.)
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
Oct 9 DJIA 14,776 “Don’t Buy A Debt Ceiling Solution Rally”
Oct 10 DJIA 14,802 “A Very, Very Dangerous Rally”
Oct 11 DJIA 15,126 “News Whipsaw Can Roil Stock Prices in Coming Days”
“Investor’s first read – an edge before the open”
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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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