Hindenburg Omen - Worth the Worry?

George Brooks |

I don’t think the Street really knows what it wants, and that is scary.

HINDENBURG OMEN:

   That’s the latest buzz and it isn’t good news. This is a combination of “technical” indicators with a good record for accuracy. It is warning of a correction in the market and not a tiny one.

   It focuses on an interaction of advancing/declining issues, new highs/new lows and  the NYSE index  relative to a 50-day moving average.

   I have come to the same conclusion based on more  indicators than that, plus some common sense thrown in, mainly that the action, or inaction of the Federal Reserve at this time can trump all indicators.

   The market’s jump in the early minutes of trading yesterday was cut short by a surge in 10-year bond interest rates. A plunge in stock prices was followed by a rebound, helped by comments by Atlanta Federal Reserve president, Dennis Lockhart that  mixed signals from the economy  do not present a strong enough case for a Fed taper  to begin in September.

   This assessment runs counter to recent comments by other Fed officials, even Lockhart himself who said  last week that progress to date is “pretty impressive and  certainly should be factored into the readiness  of the economy to move forward without asset purchases.”

  The Street buys when a Fed official suggests taper will not occur any time soon because the economy’s strength does not yet justify tapering out of QE.

   It sells when Fed officials indicate taper will start as soon as September if the economy demonstrates  a strength acceptable to the FRB.

   Interest rates on 10-year bonds jumped yesterday for the fourth time in two months, an indication  the bond market expects a Fed taper and higher interest rates regardless of who is dispatched by the Fed to calm hysteria.

   A sustainable bull market must be based on reality.  The market is a discounting mechanism,  it rises  on (or in anticipation of ) good news, and down on bad or anticipated  bad news.

CONCLUSION:

   All it would take for a big rally would be for the Fed to indicate taper will not begin in September.  But that would be the wrong reason for a rally, as I believe it was in July when Fed officials hit the road to calm fears about the impact  taper would have  on interest rates.

   The market’s ability to adjust for taper is hindered by the inconsistent comments by Fed officials.  This suggests the FRB doesn’t know what will happen when it tapers, or how it will deal with  the repercussions.

    Based on a weakening in technical indicators and  a waning credibility at the FRB, this market should correct.  Comments by Fed officials can delay a correction with more assurance there is nothing to worry about, which simply gives me a reason to worry.

   I think we will come out of this, but the odds of a very nasty correction are increasing. I have warned of a correction to DJIA 14,250 (8%) or worse. The latter would be more like 12% to 16%.

Investor’s first readan edge before the open

DJIA:  15,541.01

S&P 500: 1,694.16

Nasdaq  Comp.:3,684.44

Russell 2000:  1,051.99

 Wednesday, August 14, 2013     (9:05 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, 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.

   Apple(AAPL: $489.57)

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 - $37.01)

 

A break below $38 support triggered selling yesterday. Support looks good in the $35 – $36 area, but after yesterday that may have to be lowered to $33 - $34   FB had a 48% run in less than three weeks.  Profit taking is normal after a sharp rise. A 50% retracement would bring it back down to $33. Technically, though that is a bit much.

IBM ($188.42)

Failure to sustain a breakout  above resistance at $189.80 has sent it back to test support in the $187 area.

Foreseeable risk is $174.  Each point up or down impacts the DJIA by about 13 points.

PulteGroup (PHM- $15.37)  WATCH closely, turn possible.

Today:  A spike in 10-year interest rates yesterday in early trading dashed any hopes for a rebound yesterday.  It is feared that the spike yesterday  in 10-year interest rates will  put upward pressure on mortgage rates and subsequently home buying and building, But mortgage rates are still historically low, the price of houses increasing and inventories declining.

   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. A dip below  $14 is possible.  Housing Starts will be reported at 8:30 a.m.,  Friday. A bad report would likely trigger a selling climax and an opportunity for investors.

ECONOMIC REPORTS:

Thursday reports dominate the week.

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

MONDAY:

Treasury Budget (2:00)    July’s budget deficit for July was $97.6 billion. The fiscal year deficit is now $607 billion, down 38% from a year ago.

TUESDAY:

NFIB Small Business Optimism (7:30)  Edged up slightly in July (+0.6 points to 94.1.

Retail Sales (8:30)  Excluding auto and gasoline, retail sales rose 0.5 pct in July.

Import/Export Prices (8:30)  Proj.: +0.9 pct July

Business Inventories (10:00)  Inventories (ex. autos) were flat in June.

WEDNESDAY:

Producer Prices(8:30)   July prices were unchanged after jump of  0.8 pct in June.  Excl. food and energy +0.2 pct

THURSDAY:

Jobless Claims(8:30) Proj.:  330,000 (8/10) vs. 333,000 prior week

Consumer Price Ix. (8:30)  Proj.: +0.2 pct July, same for ex-food/energy

Empire State Mfg. Svy.(8:30)   Proj.:  10.0 for Aug. vs, 9.46 July

Industrial Production 9:15)   Proj.: +0.3 pct July, Mfg component same

NAHB Housing Market Ix.(10:00)  Proj.:  56 for  Aug

Philadelphia Fed Svy (10:00)  Proj.:  15.0 for Aug. vs. 19.8 in July vs. 12.5 in June

FRIDAY:

Housing Starts (8:30)   Proj.: 0.900 million-unit rate. Permits 0.935,000 July.  June starts were down 9.9 pct after an 8.9 pct jump in May

Productivity and Costs (8:30)  Proj.: +0.6 pct

Consumer Sentiment(9:55)   Proj.: 85.5 for Aug vs. 85.1 July

www.mam.econoday.com.

RECENT POSTS:   2013

July 31 DJIA  15,520  “Has the Market Discounted a Fed Policy Change ?”

Aug  1  DJIA  15,499  “Dear Fed, Lay It Out There, We Can Handle It”

Aug  2  DJIA  15,628  “Street Must Taper Out of Reliance on Fed Stimulus”

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 ?”

  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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Companies

Symbol Name Price Change % Volume
RBKDF Royal Bank Canada Montreal Quebec 4.500% Non-Cumul 18.64 0.00 0.00 0

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