Fear of Default Returns - Trader Alert

George Brooks |

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 readan edge before the open

DJIA:  15,237

S&P 500:   1,703

Nasdaq  Comp.:  3,791

Russell 2000:  1.084

Monday, Oct. 14, 2013     (9:16 a.m.)


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”

  George  Brooks

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


NOTE:  STOCK TRADERS ALMANAC: The new annual Stock Trader’s Almanac  was late this year, due to a printing issue which has been resolved.   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


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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Symbol Name Price Change % Volume
AAPL Apple Inc. 115.59 -2.66 -2.25 66,136,244
EBAY eBay Inc. 28.82 -0.23 -0.79 8,944,463
FB Facebook Inc. 131.04 -1.25 -0.94 13,085,168
FSLR First Solar Inc. 41.11 0.43 1.06 1,525,880
HPQ HP Inc. 13.91 0.01 0.07 17,328,583
IBM International Business Machines Corp 151.81 0.93 0.62 2,811,728
PHM PulteGroup Inc. 18.58 0.01 0.05 4,057,369
PPJED PPJED n/a n/a n/a n/a


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