Fed Policy Change - Big Impact on Stock Market?

George Brooks |

This is abig week for Economic indicators, which could influence  the Federal Reserve’s  decision on whether to begin its taper out of QE in September ……or later in the year.

   Obviously, a strong showing by the economy gives the Fed a green light for tapering early and a weak showing cause for delay.

   Another reason for delay would be the sharp jump in interest rates and especially mortgage rates which may stifle the recovery in the critical housing industry. So far, the results are mixed, existing house sales are up, new house sales down.

   While the focus on the Street is a taper in September – or a later taper, the core issue here is that Fed policy would be changing and QE would  be terminated next year.

   On the one hand, that would happen only if the economic recovery were gaining traction.  On the other hand,  the economy would be “on its own,” out in the real world.

   That is what the stock market must ultimately adjust for.  While this bull market is up 150% and nearly four and a half years old,  it has room to run.

   However, the big question I have is, will it enter a corrective phase as it  digests the uncertainty of the Fed’s change in policy ?

CONCLUSION:

  At some point , the Street must wean itself off Fed life support. It must accept  economic growth over  the security of having the Fed  always there to ensure its survival – no longer walking a highwire with a safety net.

   Stock prices are being buffeted by conflicting statements from the Fed about the timing of taper and that will continue.

TODAY:

   The market attempted to turn the corner Friday and will attempt to follow through this morning.

   Initially, it will hit resistance at DJIA 15,095 (S&P 500: 1,670). A rally failure today or tomorrow where the market gives back its entire gain for the day would signal  another leg down near-term.

   I still se the potential for that before early October, but realistically, much depends on how the  economy/taper issue plays out in coming weeks.

Investor’s first readan edge before the open

DJIA:  15,010.36

S&P 500:  1,663.47

Nasdaq  Comp.: 3,657.74

Russell 2000:  1,038.72

Monday, August 26, 2013     (9:10 a.m.)       

   TECHNICAL OBSERVATION – STOCKS:

The following are observations based solely on technical analysis and don’t give consideration to fundamentals or changes in brokerage ratings which can  have an immediate impact on stocks, justified or not.  The idea here is to give readers insight into the likely trends and turns in the stock’s price, short-and long-term.

   I picked up on AAPL and FB last year when they were in a tailspin, and  picked up on IBM, Pulte, First Solar, Target, and Hewlett-Packard recently for the same reason. These are not  buy or sell recommendations, and are not stocks I have recommended.

I will primarily focus on quality stocks that have had a decline and seek to assist readers in targeting points where the stock will find temporary support levels and hopefully the final support level from which the stock can turn around.

   But I will also track stocks in an uptrend

   Again, these are purely technical assessments without consideration for fundamentals.

  Apple(AAPL: $501.24 )  Watch ! Potential run to 507 - 509

Note: Targeted the Turn around  Apr. and Jun. 2013 (double bottom). This is follow up.

Pattern: Positive, consolidating recent up move.

Resistance: $503

Support is $500. Trading in very tight  slide from $504 with the beginning of a breakout in late trading Friday

  Facebook (FB - $40.51)

Note: Targeted the  turnaround Sept. 2012, this is  the follow up.

Pattern: Positive – Broke out of consolidation on increased volume..

Resistance:   new tutf - $43.50 - $46

Support:  Breakout raises support to $40

  IBM ($185.56 )  No change from Friday

Note: Started coverage  Aug. 7, 2013 after big plunge in stock

Pattern: Negative

Resistance:  $186.20

Support:  $184.25,  but I still see $181.  Breaking that, look for $174   Be aware that IBM has ranged four times up and down between $185 and $215 over the last two years.  Unless the fundamentals are horrendous  it is due for institutional buying, most likely in this area and possibly at or a smidge below $180.

Right now, there are sellers that must be taken out.

Each point up or down impacts the DJIA by about 13 points.

  PulteGroup (PHM- $ 16.06)

Note: Started coverage Aug. 12, 2013

Pattern: Positive, but needs test of  recent low ($14.23)  needs to develop in coming weeks to cement  upturn. The Street is on edge about how much the rise in mortgage rates will impact the homebuilding and housing industry. Common sense say it will have a temporary impact, but rates are still low, house prices rising and inventories down. If people want to buy a house, they had better not tarry long.

Resistance: $16.38

Support: $15.35

First Solar (FSLR:$38.97)

Note: Started coverage: Aug.: 22

Pattern: Negative, ran into sellers at $40, again at $39.  Big gap between $46 and $42 will be hard to work through.

Resistance:$39.12

Support: Rises to $38.25.  Stock has had some nice buying in last three days. Odds favor a sideways basing action between $37 and $40 with some support at #38.

Target (TGT: 64.35)   Heads up !

Note: Started coverage Aug: 22:

Pattern: Negative

Resistance: $65

Support: $64.12.   Has had a number of spikes in volume in three days indicating institutions are dumping but suggesting SOMEONE is buying.   Volume spike late Friday suggests test of  support.

Hewlett-Packard (HPQ: 22.40 )

Note: Started coverage Aug. 23

Pattern: Negative, probing for comfort level

Resistance: $22.50.  A volume spike at the close Thursday did indicate some buying interest and the potential for a move to the $22.50 - $23 area.

Support: $22.45 but untested. Penetration raise chances of $19.85

 I do not own, nor am I short  AAPL, FB, IBM, PHM, FSLR ,TGT, or HPQ

ECONOMIC REPORTS:

Heavy schedule this week, also speeches by Federal Reserve  officials

 

   For a detailed account of past and current economic reports, including charts go to: mam.econoday.com - www.mam.econoday.com

MONDAY:

Durable Goods (8:30)  Proj.: -4.0 pct.   Ex. trans  +0.3 pct.

Dallas Fed Mfg (10:30) Proj.:   Aug. index 4.5 vs. Jul. 4.5

TUESDAY:

ICSC Goldman Store Sales (7:45) Proj.:  none

S&P Case-Shiller Home Prices (9:00) Proj.:  June +1.0 pct m/m,    +12.2 pct. y/y

Consumer Confidence (10:00) Proj.: Proj.:  Aug. index 78.0

Richmond Fed Mfg. Ix. (10:00) Proj.:  Aug. index  improved to zero vs, Jul. minus 11

WEDNESDAY:

Pending Home Sales (10:00) Proj.:   Jul. -1.0 pct.

THURSDAY:

Q2 GDP (8:30) Proj.:  +2.2 pct. at annual rate. Comparisons affected by annual revision

Jobless Claims (8:30) Proj.:  330,000 for week ended 8/24 vs. 336,000 for prior week.

Corporate Profits (8:30)   No proj.

Bloomberg Consumer Comfort Ix. (9:45)  No proj.

Fed’s Jeffrey Lacker speaks (2:00)

Fed Balance Sheet (4:30) Proj.:

Fed’s James Bullard speaks (7:45 p.m.

FRIDAY:

Personal Income/Outlays (8:30) Proj.:  Jul. PI +0.2 pct., Expenditures +0.3 pct

Fed’s James Bullard speaks 9:00) 

Chicago PMI (9:45) Proj.:  Aug. index 53.0  vs. 52.3 Jul.

Consumer Sentiment (9:55) Proj.:  Aug. index   80.0

RECENT POSTS:   2013

Aug 15 DJIA 15,337   “October Buying Opportunity at Much Lower Levels”

Aug 16  DJIA 15,112  “Fed Pressed for Clarification – Rallies Suspect”

Aug 19  DJIA 15,081  “Will Fed Intervene to Stop the Carnage ?”

Aug 20  DJIA 15,010  “Rally Ahead of Wednesday’s FOMC Minutes”

Aug 21  DJIA 15,002  “No September Taper = Bad For Stock Market”

Aug 22  DJIA 14,897  “Street’s Angst Not About First Taper, but……”

Aug 23  DJIA 14963  “Big Day: Rebound or Rally Failure ?”

  George  Brooks

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

sensiblesleuth@gmail.com

……………………………………………..

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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