On June 6, I warned that with Fed “taper” talk mounting, stock prices may begin marching to a “news whipsaw” drumbeat. The news whipsaw has been the core of my letters ever since.
In a news whipsaw market prices swing sharply changing direction without warning in response to “news.”
Stock and bond markets were roiled, following Fed. Chair Ben S. Bernanke’s comments following last week’s FOMC meeting. Bernanke indicated the Fed may start easing its bond-buying program this year and end it entirely in mid-2014.
Stock prices plunged, bond prices rose.
Suddenly today two Fed presidents surfaced with assurance that Fed policy will continue to be accommodative for a considerable time after the end of quantitative easing (QE). The result is a surge in prices prior to the open today.
That’s a whipsaw !
Both FRB presidents, Richard Fisher (FRB – Dallas) and Narayana Kocherlakota (FRB – Minneapolis) emphasized “accommodation” in separate speeches yesterday.
While neither is currently a voting member of the Board, they were IMHO dispatched to calm the storm.
WHAT NEXT ?
Obviously, the adverse reaction in stock and bond markets surprised the Fed and we can expect more attempts to calm fears and assure investors that Fed tapering will be executed carefully so as not to stress markets further.
THAT SAID, BE ON ALERT FOR THE NEXT ROUND OF NEWS TO THE CONTRARY.
Uncertainty remains. I thought the Fed made it clear beyond a doubt in its commentary following the FOMC meeting that it will ease out of QE, that if its move was premature, it would reinstate QE to boost a sagging economy.
No matter what the Fed says here, the Street will have doubts and that spells “uncertainty.”
The markets will march to the last piece of news until it establishes a “comfort” level that adequately discounts the uncertainty about the Fed, as well as any new problems, such as China’s credit crisis and sagging economy.
There is a lot of resistance overhanging the stock market, starting at DJIA 14,744 (S&P 500: 1,584).
The DJIA should find some support in the DJIA 14,550 (S&P 500: 1,560) area, since that was a base in April and May.
Failing that, the market can drop to DJIA 14,195 (S&P 500: 1,543) within a month.
Investor’s first read – an edge before the open
S&P 500: 1,573.09
Russell 2000: 951.96
Tuesday, June 25, 2013 (9:06 a.m.)
Apple (AAPL: $402.54)
AAPL’s stock is begging for big news, a 16 oz. steak, not cheese and crackers. Granted, it’s a reasonable value here if there is something to look forward to. If the “wait” is too long, there will be more selling as investors eye better prospects that by way of this market decline are popping up.
AAPL’s technical pattern is what is called a waterfall pattern and suggests a break below $400, and a test of April’s $385 low.
.At 10 times earnings and yielding 2.94%, AAPL is a value, but management has not yet produced news that would prompt institutions to buy in-size. The Street is becoming impatient. Nevertheless, long-term buyers can be expected to use this slippage to buy.
FACEBOOK (FB - $23.93)
Overhead supply is formidable at $24.45, and yesterday’s drop in the overall market broke FB down below the trend line of an early-stage up-channel. But FB closed close to its high for the day, a good sign on a lousy day. Near-term, I can see a drop below $23.75.
Big week shaping up for economic reports. The Street is now faced with a choice – Is it hoping for disappointing reports and an increase in the likelihood that the Fed won’t back away from Q.E. soon ? Or will it hope for upbeat reports, a sign that Q.E. has been helping. It can’t have it both ways – Q.E. and a sharply improving economy. For access to information including charts and graphics go to www.mam.econoday.com . Great site !
ICSC-Goldman Store Sales (7:45) No proj.
Durable Goods Orders (8:30 Proj: +3.3% for May 13, ex-transport: minus 0.1%
FHFA House Price Ix.(9:00) Proj: +1.2% for Apr. 13
S&P Case-Shiller Home Price Ix. (9:00) Proj: +1.5% m/m
New Home Sales (10:00)Proj: annual rate of 460,000 units
Consumer Confidence (10:00) Proj: 75.0 for June 13
Richmond Fed. Mfg Ix. (10:00) Proj: 2 vs. a minus 2 in May
GDP – Q1 (8:30) Proj for third time to be +2.4%
Jobless Claims (8:30) Proj: 345,000 for June 22 vs 354,000 for June 15 week.
Personal Income/Outlays (8:30) Proj: +0.2% for May 13
Bloomberg Consumer Comfort Ix. 9:45)
Pending Home Sales(10:00) Proj: Proj: +1.0% for May 13
Kansas City Fed Mfg Ix. 11:00) Proj: 4.0
Chicago PMI (9:45) Proj: 55.0
Consumer Sentiment (9:45) Proj: 83.0
“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.
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