Interest rates are rising and the Fed doesn’t like that. Do not be surprised if we get commentary out of the Fed intended to ease concerns about its tapering out of QE.
The emphasis would be more of what it has already said, that taper is not the same as the tightening of credit via higher interest rates.
This kind of commentary would prompt a temporary rally in the stock and bond markets.
The Fed has been much too vague about something so important as unwinding a four-year policy.
As a result, they have created suspicion, doubt, fear and paranoia.
It was the jump in these rates following Bernanke’s June 19 statement about taper that triggered a host of Fed officials to rush out with comments that were intended to dispel fears that taper and tightening were one in the same.
While their efforts did not help the bond market much, the stock market soared 8%.
That was an artificial rally, manipulated by commentary, and we are paying for it now.
What is needed here is for the Fed to lay out Plan A, Plan B, etc. and let the market adjust with full knowledge of the possibilities, rather than assumptions based on guesswork.
The market is a discounting mechanism, a level that tends to adjust for known and potentially bad and good news. Right now, it doesn’t have a handle on what to expect from the Fed and what the repercussions may be once its policy change is put into effect.
As a result, expect extreme volatility with a downside bias. This has the potential to get very ugly.
I have been targeting DJIA 14,250, or worse by early October. That’s not a big deal, we were there in March.
TODAY: Assuming no Fed Commentary
Resistance DJIA is 15,140 (S&P 500: 1,663)
Support: DJIA 15.050 (S&P 500: 1,654)
Investor’s first read– an edge before the open
S&P 500: 1,661.32
Russell 2000: 1,027.61
Friday, August 16, 2013 (9:15 a.m.)
TECHNICAL OBSERVATION – STOCKS:
The following are observations based on 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 recently for the same reason, and am including Pulte, since it has been in a pronounced slide. These are not to be construed as buy or sell recommendations.
These are not stocks I have recommended.
Looks like there are buyers at $495, but sellers at $499. That should be resolved on the upside.
Carl Icahn tweeted he has a large position in AAPL with a suggestion of more to come. News sent the stock beyond my projected resistance of $480. Icahn met with AAPL CEO Tim Cook yesterday. Icahn will undoubtedly pressure Cook to put the company’s idle cash to work most likely through stock buybacks. Hmmm, Wouldn’t that even enhance the value of Icahn’s position further ?
Facebook (FB – $36.56)
No change here.
Support looks good in the $35 – $36 area. FB needs to digest its 48% run July and early August. Resistance is now $36.70.
Yesterday’s weakness puts $181 in IBM’s crosshairs and possibly $174, but not in a straight line. 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.
Each point up or down impacts the DJIA by about 13 points.
PulteGroup (PHM- $15.91) WATCH closely, turn possible.
. My Thursday post urged readers to “watch closely. Turn possible.,” and noted: Housing Starts will be reported at 8:30 a.m., Friday. A bad report would likely trigger a selling climax, I said. and an opportunity for investors on Friday or Monday at the open possibly below $13.60..
At 10 o’clock, the National Association of Home Builders (NAHB) confidence report for August surprised with an index reading of 59 (vs. forecast of 56) along with a statement that homebuilder confidence has risen to the highest level in 8 years.
Pulte rose from a Thursday low of $14.23 to close at $15.91..
July Housing Starts were reported at 8:30 today and were up 5.9% following a 7.9% drop in June.
That’s what unexpectedly good news can do to a strong industry group has undergone a big correction.
I was looking ahead to an unimpressive Friday Housing Starts expecting it to trigger a selling climax in PHM et al, and got blindsided by the NAHB report.
The homebuilding stocks are down sharply since May. Home builders have taken a pasting and Pulte is no exception down 35% from its May high. More slippage is possible, especially if the overall market drops. I can’t get too bearish on this industry since its stocks have been hammered, PHM down 35% since May. Yes, mortgage rates have jumped, but are still historically low. House prices are rebounding and inventories are low. That spells pressure – pressure to BUY a house before rates and house prices rise further.
Thursday reports dominate the week.
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
Jobless Claims(8:30) Declined 15,000 to 320,000 (8/10) vs. 333,000 prior week
Consumer Price Ix. (8:30) Increased +0.2 pct July vs. gain of 0.5 pct in June
Empire State Mfg. Svy.(8:30) Proj.: slipped to 8.25 in Aug. vs, 9.46 July
Industrial Production 9:15) Unchanged in July vs. 0.2 pct gain in JUne
NAHB Housing Market Ix.(10:00) Rose to 50 well above projected 56 and highest in 8 years.
Philadelphia Fed Svy (10:00) Dropped to 9.3 in Aug. from 19,8 in July well below projected 15.0.
Housing Starts (8:30) July starts were up 5.9 pct after a 7.9 pct drop in June.
Productivity and Costs (8:30) Productivity jumped 0.9 pct vs, projections for a rise of 0.6 pct.
Consumer Sentiment(9:55) Proj.: 85.5 for Aug vs. 85.1 July
RECENT POSTS: 2013
Aug 5 DJIA 15,658 “August/September Correction Looms”
Aug 6 DJIA 15612 “Market Doesn’t Need Reason to Correct”
Aug 7 DJIA 15,518 “Uncertainties to Plague Market Until September”
Aug 8 DJIA 15,470 “DJIA 14,250 by Early October, or Worse
Aug 9 DJIA 15,498 “Has a Correction Already Started ?”
Aug 12 DJIA 15,425 “Taper, A Withdrawal Process From Addiction”
Aug 13 DJIA 15,419 “Homebuilders Ready for a Bounce ?”
Aug 14 DJIA 15,451 “Hindenburg Omed – Worth the Worry ?”
Aug 15 DJIA 15,337 “October Buying Opportunity at Much Lower Levela”
“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. Brooks may buy or sell stocks referred to herein.