The new negative on the block is concerns about the consequences of what happens when the Fed cuts back on its $85 billion/mo. Bond purchases ? Will it prompt a spike in interest rates, clobber the stock market and slow the economic recovery ?
The prospective Fed action is being referred to as “tapering,” aka Fed tapering fears, “tapering tantrum.”
It’s a given it will happen, the uncertainty that plagues the market with varying degrees of intensity is “when.”
Until May 22, this year’s surge in prices has been driven by money managers scrambling to own stocks, many switching from long-term bonds to do it.
They are competing with others to generate a return for clients, or lose the account. With interest rates next to zero and an absence of negative news, they have had no other alternative but to buy stocks.
With the prospect for a change in Fed policy drawing closer, the Street must begin to worry about tapering by the Fed.
Recently, I suggested readers raise some cash, and watch rallies for signs of fatigue, that it is the bulls, not bears, who will signal the beginning of the correction so many (self included) have expected to occur.
If the bulls curtail their persistent purchases of stocks in anticipation of Fed tapering, the market will correct 4% to 8% as a result of everyday selling. The market doesn’t need “bears/doomsters” to do it.
Bad economic news is presently presumed to be good news, simply because the Street believes it delays Fed tapering.
Today’s ADP Employment Report came in below expectations at 135,000 private sector jobs, but didn’t impact stock-index options when announced. The Street is waiting for Friday’s Employment Situation Report.
A robust report would increase the imminence of Fed tapering and a further decline in stocks.
This isn’t the first time this issue has been considered, and clearly the Fed isn’t giving thought to the consequences of withdrawal if done poorly.
Yes, the market will take a hit when it is obvious to the BIG money the Fed will taper, but I think the hit will be brief and a great buying opportunity.
CONCLUSION: Prepare for the “hit,” but more importantly, prepare for the “opportunity.” My feeling the latter will come and go in a matter of minutes.
Kind of a “shake-rattle-then roll” kind of thing.
Resistance is DJIA 15,236 – 15,264. (S&P 500: 1,637 – 1,643)
DJIA 15,100 (S&P 500: 1,623) must hold to prevent another sharp drop.
Investor’s first read – an edge before the open
DJIA: 15,177.54
S&P 500: 1,631.38
Nasdaq Comp.: 3,445.25
Russell 2000:981.97
Wednesday, June 5, 2013 (9:13 a.m.)
NOTE: I am considering adding stocks to this blog, but haven’t decided on a format. I write this between 8:30 and 9:12 after reading morning news starting at 7 a.m. Overnight news can impact the market, as well as stocks, so I can’t work too far in advance. I like to get a look at pre-market trading in both the stock market and individual stocks per chance there is a change shortly before the open. This keeps commentary on stocks on a short leash !
Apple (AAPL: $449.31)
AAPL got stopped in its tracks yesterday a shade below $455. It’s consolidating between $444 and $456. There appears to be a lot of overhead supple between $456 and $465. Support looks good at $444, but a drop in the overall market would take it to $427. W
FACEBOOK (FB – $23.52)
The $19 – $22 area represents major technical support and FB may test that area where it would become technically attractive. That said, the pros may opt to jump the gun and buy ahead of any attempt to drop to, or below $22.
ECONOMY:
We have a full docket of economic reports this week. For access to information including charts and graphics go to www.mam.econoday.com .
WEDNESDAY:’
ADP Employment Rept. (8:15) Projection 171,000 new jobs
Productivity and Costs (8:30)
Factory Orders (10:00) Projection +1.4%
ISM Non-Mfg. Ix. (10:00) Projection 53.8
Beige Book (2:00 p.m.)
THURSDAY:
Jobless Claims (8:30) Projection – 10,000 to 345,000
FRIDAY:
Employment Situation (8:30)
Projection Nonfarm 167,000
Private payroll 178,000
Unemployment rate 7.5%
Consumer Credit (3:00 p.m.) +14 billion
RECENT POSTS: 2013
May 13 DJIA 15,118 “Stocks Up – Bonds Heading Down”
May 14 DJIA 15,091 “Correction: Pro & Con – What to Look For”
May 15 DJIA 15,215 “Raise Some Cash – Politics to Get Uglier”
May 16 DJIA 15,275 “Again, Raise Some Cash”
May 17 DJIA 15,233 “Watch Rallies For Signs of Fatigue”
Vacation: May 17 – May 27
May 28 DJIA 15,303 “Key Rally”
May 29 DJIA 15,409 “Bulls, Not Bears, to Signal Start of Correction”
May 30 DJIA 15302 “Key Juncture for Market’s Near-Term Direction”
May 31 DJIA 15,324 “Bulls Must Step In – Now !”
June 3 DJIA 15,115 “Bulls Must Regain Control to Avert Correction”
June 4 DJIA 15,254 “Bulls Need to Follow Through Today”
George Brooks
“Investor’s first read – an edge before the open”
[email protected]
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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.
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